On August 2, 1990, Iraq invaded Kuwait and annexed it, accusing it of grabbing Iraq’s money and land. The Emir of Kuwait Sheikh Jabar al Sabah fled the country. The crisis began when Baghdad accused Kuwait and U.A.E. of sabotaging its economy by overproducing oil and thus depressing oil prices, reducing Iraqi earnings.
Iraq further wanted $10 billion as aid, $10 billion Kuwaiti loan to fight war with Iran, renunciation of Kuwait’s claim to Rumalia oil fields and long term lees of strategic Bubiyan Island. U.N. Security Council in the emergency session condemned Iraqi aggression.
Arab League emergency summit in Jeddah on August 2, appealed Iraq to withdraw from Kuwait. On August 6th, U.N. Security Council imposed worldwide oil embargo and trade sanctions U.S. sent several ships to Gulf for enforcing sanctions by naval blockade. On 9th Aug. Security Council declared Iraqi annexation as null and void. On
25th August it called for use of force to enforce economic sanctions. Soviet Union called for unconditional withdrawal. Reaction of Arab League was low key. India also expressed regrets. The likely repercussion for India- Increase in foreign exchange outgo at current enhanced term and spot prices by Rs. 2000 crore. Crisis of an oil crunch. Oil import bill likely to increase by Rs. 2500 crore in 90-91. Trade deficit may rise to Rs. 10,000 crore. 172,000 Indians working in Kuwait and 10,000 in Iraq stranded there
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$ 3.4 billion setback to economy in terms of payment of more money for oil, loss of NR1 remittance and cost of evacuation.