Throughout much of the Cold War, Iraq had been an ally of the Soviet Union, and there was a history of friction between it and the United States. The U.S. was concerned with Iraq's position on Israeli–Palestinian politics, and its disapproval of the nature of the peace between Israel and Egypt.

The United States also disliked Iraqi support for various Arab and Palestinian militant groups such as Abu Nidal, which led to its inclusion on the developing U.S. list of State Sponsors of Terrorism on 29 December 1979. The U.S. remained officially neutral after the invasion of Iran, which became the Iran–Iraq War, although it assisted Iraq covertly. In March 1982, however, Iran began a successful counteroffensive - Operation Undeniable Victory, and the United States increased its support for Iraq to prevent Iran from forcing a surrender.

In a U.S. bid to open full diplomatic relations with Iraq, the country was removed from the U.S. list of state sponsors of terrorism. Ostensibly this was because of improvement in the regime’s record, although former United States Assistant Secretary of Defense Noel Koch later stated, "No one had any doubts about [the Iraqis'] continued involvement in terrorism. The real reason was to help them succeed in the war against Iran."

With Iraq's new found success in the war, and the Iranian rebuff of a peace offer in July, arms sales to Iraq reached a record spike in 1982. An obstacle, however, remained to any potential U.S.-Iraqi relationship - Abu Nidal continued to operate with official support in Baghdad. When Iraqi President Saddam Hussein expelled the group to Syria at the United States' request in November 1983, the Reagan administration sent Donald Rumsfeld to meet President Hussein as a special envoy and to cultivate ties.

Tensions between Iraq-Kuwait

By the time the ceasefire with Iran was signed in August 1988, Iraq was virtually bankrupt, with most of its debt owed to Saudi Arabia and Kuwait. Iraq pressured both nations to forgive the debts, but they refused. Iraq also accused Kuwait of exceeding its OPEC quotas and driving down the price of oil, thus further hurting the Iraqi economy.

The collapse in oil prices had a catastrophic impact on the Iraqi economy. 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.

The Iraq-Kuwait dispute also involved Iraqi claims to Kuwait as a territory of Iraq. After gaining independence from the United Kingdom in 1932, the Iraqi government immediately declared that Kuwait was rightfully a territory of Iraq, as it had been an Iraqi territory for centuries until the British creation of Kuwait after World War I and thus stated that Kuwait was a British imperialist invention. Iraq claimed Kuwait had been a part of the Ottoman Empire's province of Basra. Its ruling dynasty, the al-Sabah family, had concluded a protectorate agreement in 1899 that assigned responsibility for its foreign affairs to Britain. Britain drew the border between the two countries, and deliberately tried to limit Iraq's access to the ocean so that any future Iraqi government would be in no position to threaten Britain's domination of the Persian Gulf. Iraq refused to accept the border, and did not recognize the Kuwaiti government until 1963.

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 U.S. naval fleet in the Persian Gulf was placed on alert. On the 25th, Saddam Hussein met with April Glaspie, an American ambassador, in Baghdad. According to an Iraqi transcript of that meeting, Glaspie told the Iraqi delegation, "We have no opinion on the Arab-Arab conflicts." On the 31st, negotiations between Iraq and Kuwait in Jeddah failed violently