The United States remained officially neutral after Iraq's invasion of Iran in 1980, which became the Iran–Iraq War, although it provided resources, political support, and some "non-military" aircraft to Iraq. With Iraq's newfound success in the war, and the Iranian rebuff of a peace offer in July, arms sales to Iraq reached a record spike in 1982. When Iraqi President Saddam Hussein expelled Abu Nidal to Syria at the US's request in November 1983, the Reagan administration sent Donald Rumsfeld to meet Saddam as a special envoy and to cultivate ties.

Dispute over the financial debt

By the time the ceasefire with Iran was signed in August 1988, Iraq was heavily debt-ridden and tensions within society were rising. Most of its debt was owed to Saudi Arabia and Kuwait. Iraq's debts to Kuwait amounted to $14 billion. Iraq pressured both nations to forgive the debts, but they refused.

Iraqi hegemonic claims

The Iraq–Kuwait dispute also involved Iraqi claims to Kuwaiti territory. Kuwait had been a part of the Ottoman Empire's province of Basra, something that Iraq claimed made Kuwait rightful Iraqi territory. Kuwait's ruling dynasty, the al-Sabah family, had concluded a protectorate agreement in 1899 that assigned responsibility for Kuwait's foreign affairs to the United Kingdom. The UK drew the border between Kuwait and Iraq in 1922, making Iraq almost entirely landlocked. Kuwait rejected Iraqi attempts to secure further provisions in the region.

Alleged economic warfare and slant drilling

Iraq also accused Kuwait of exceeding its OPEC quotas for oil production. In order for the cartel to maintain its desired price of $18 per barrel, discipline was required. The United Arab Emirates and Kuwait were consistently overproducing; the latter at least in part to repair losses caused by Iranian attacks in the Iran–Iraq War and to pay for the losses of an economic scandal. The result was a slump in the oil price – as low as $10 per barrel ($63/m3) – with a resulting loss of $7 billion a year to Iraq, equal to its 1989 balance of payments deficit. Resulting revenues struggled to support the government's basic costs, let alone repair Iraq's damaged infrastructure. Jordan and Iraq both looked for more discipline, with little success. The Iraqi government described it as a form of economic warfare, which it claimed was aggravated by Kuwait slant-drilling across the border into Iraq's Rumaila oil field.

In early July 1990, Iraq complained about Kuwait's behavior, such as not respecting their quota, and openly threatened to take military action. On the 23rd, the CIA reported that Iraq had moved 30,000 troops to the Iraq-Kuwait border, and the US naval fleet in the Persian Gulf was placed on alert. Discussions in Jeddah, Saudi Arabia, mediated on the Arab League's behalf by Egyptian President Hosni Mubarak, were held on 31 July and led Mubarak to believe that a peaceful course could be established. The result of the Jeddah talks was an Iraqi demand for $10 billion to cover the lost revenues from Rumaila; Kuwait offered $500 million. The Iraqi response was to immediately order an invasion, which started on 2 August 1990 with the bombing of Kuwait's capital, Kuwait City.