After the Iran-Iraq war ended in 1988, Iraq was unable to repay $14bn it had borrowed from neighbouring Kuwait to finance the war. Iraq also claimed that Kuwait’s refusal to cut oil production was depressing the oil price, and that Kuwait was stealing oil from a cross-border field.
However, despite deteriorating relations between the two sides, the world was still taken by surprise when Iraq’s dictator Saddam Hussein ordered his forces to invade Kuwait on 2 August 1990.
The invasion was condemned by all major powers and the UN Security Council passed a resolution demanding the Iraq army withdraw. On 7 August, the US began Operation Desert Shield, sending troops to protect neighbouring Saudi Arabia, which was threatened by Saddam.
While diplomatic efforts to persuade Iraq to retreat continued, the US began assembling a military coalition of 39 countries to force it to exit. Meanwhile, markets worried about the impact on oil supply, with prices more than doubling to a peak of $46 per barrel in October.
On 29 November, the Security Council passed a resolution demanding a full Iraqi exit by 15 January 1991. When this deadline passed, the US president, George HW Bush, announced the start of military action (Operation Desert Storm) the following day.
Several weeks of air bombardment overwhelmed Iraqi forces, and the coalition was able rapidly to take control after entering Kuwait on 24 February.
The US declared a ceasefire on 28 February. Oil prices fell back to $20 per barrel. They would remain at a similar level for the rest of the 1990s, helping to boost the world economy.