The 1988 cease-fire did not halt all military action within Iraq. In fact, in 1990, Iraq claimed that Kuwait was injuring Iraq's economy with petroleum overproduction and invaded the neighboring country, who had been Iraq's ally during problems with Iran, on August 2. Shortly after the August 2 attack, Iraq had taken over the country. The UN Security Council immediately looked down upon Iraq's actions, and imposed a trade embargo on Iraq. The UN further stated that Iraq must, under all conditions, withdraw from Kuwait by January 15, 1991.

Iraq failed to comply with the UN's order and was thus entered into attacks by a coalition led by the United States. Many military and infrastructuaral targets in Iraq and Kuwait were bombarded by planes following January 15. The Persian Gulf War followed wrecking havoc on Iraq and was hence forced out of Kuwait after a short period of around six weeks. Many thousands of Iraqis were killed and much of the Iraqi weapons and artillery were damaged or destroyed. After this great loss, Iraq agreed to UN terms for a permanent cease-fire in April. Troops withdrew from Kuwait in the result of a UN peacekeeping mission between the Iraq-Kuwait border. Even after this cease-fire and peacekeeping mission, the Iraqi government used its military forces to suppress the Shiites in the south and Kurds in the north, causing widespread panic and emigration out of the area. All through 1992, Iraq was under intense international pressure to eliminate its remaining military forces.

By 1993, this pressure had resulted in the UN completely dismantling Iraq's nuclear, biological, and chemical warfare capability. In June, the United States launched a cruise missile attack against Iraq after a reported Iraqi assassination plot against former US president George Bush. The Iraqi people continued to try to suppress the Kurds resulting in the eventual embargo placed on them by the United States which depleted and destroyed Iraq's economy for some amount of time. Nonetheless, strife continued between the Iraqi people and the Kurds. In May 1994, two rival Kurdish factions, the Patriotic Union of Kurdistan (PUK) and the Kurdistan Democratic Party(KDP) clashed with ending in many deaths. This civil war continued until 1994 when it settled down for a short time but then continued until August of 1995. At that point, a peace agreement was signed by the PUK and KDP.

In October of 1995, Iraqi troops had reformed along the Kuwait-Iraqi border, and the United States, with the help of France and Great Britain, deployed troops and aircraft into the Persian Gulf region to deal with the problem. Four days after the US troops entered the area, Saddam Hussein's troops began to withdraw. The next month, Hussein signed a decree accepting Kuwait's sovereignty, political independence, and territorial integrity.

Also in 1995, Iraq's economy became even more depleted. In April, the UN voted unanimously for a plan under which Iraq would be allowed to sell some amount of oil with partial proceeds going towards the victims of the invasion of Kuwait and Kurds in northern Iraq. The Iraqi government originally rejected the plan, but, as things got worse within the country, reversed their opinion in May of 1996 and formally accepted the UN Security Council's plan.