Trade has always been the main factor in the existence of Kuwait. Before the Suez Canal was opened in 1868, Kuwait Bay was one of the natural harbours in the Gulf. Due to this geographical advantage, early Kuwait became the centre of much transit from Africa, China and India to Europe.

Since the discovery of oil in Kuwait in the 1930s and the development of the petroleum industry in the years after World War II, oil has dominated the economy of the country, accounting for more than 90 percent of its export revenues until the 1980s. During the 1980s Kuwait began to earn more money from its now vast overseas investments than from the direct sale of oil. It was this investment income that sustained Kuwait during the Iraqi occupation of 1990-91 and the subsequent period when oil exports ceased.

Historically Kuwait has been one of the largest oil producers in the world and has had one of the largest oil reserves of any producing country. This income gives Kuwait one of the highest per capita incomes in the world. Although the downturn in the world oil market in 1986 substantially reduced the income from oil exports, Kuwait's economy did not suffer greatly. In part this was because the return on foreign investments had begun to exceed the income from oil. Kuwait's foreign investments are mostly in the United States and include a variety of holdings. The Kuwait Fund for Arab Economic Development, established in 1961, extends generous loan assistance to governments of Muslim and Third World countries, although no longer at the levels achieved in the 1970s, when aid disbursements reached as much as 15 percent of the gross national product.

In the year 2001, the National Assembly passed certain bills to jump start the sluggish economy. One such law passed was aimed at empowering the private sector through setting up of a favourable atmosphere conducive to free competition, higher quality service and products. According to the bill, the state should maintain unilateral rights to dictate financial policies in privatised projects of strategic importance or services that can be monopolised in the light of public interest.

The most dramatic aspect of Kuwait's economic development since the 1970s has been the expansion of its oil industry. By the mid-1980s, Kuwait was refining 80 percent of its oil at home and marketing 250,000 barrels a day in its own European retail outlets under the logo "Q8." Domestically, Kuwait has invested its revenues in social services, including health and education (giving it one of the most literate populations in the region), in infrastructure, and only marginally in local industry.

Employment generated directly by oil production and export accounts for only a small percentage of the labour force. More than half of all employed Kuwaitis work for the state, most of these in the public administration, defense, and services sectors; about one-fifth of all jobs are in construction; and the trade, manufacturing, transportation and communication, finance, and agriculture sectors all employ more than the oil sector. In both the public and private sectors, Kuwait remains heavily dependent on foreign labour, although after the invasion, the government reiterated more forcefully its formal goal of reducing this dependence.

Kuwait's proven, recoverable oil reserves are thought to be enough to sustain pre-invasion levels of production for more than 150 years. Kuwait also has considerable reserves of natural gas, almost all of it in the form of associated gas - i.e., gas that is produced together with oil. There are no other important minerals. Naturally occurring fresh water is scarce (and, until desalination plants were built after World War II, water had to be imported)

The possibilities of agricultural development are severely limited. Only a very small percentage of the land is arable, and because of the scarcity of water, deficiencies of soil, and lack of manpower trained in agricultural skills, an even smaller percentage of the land area is under actual cultivation. Agriculture's contribution to the output of the economy is insignificant. Fish are plentiful in the Arabian Gulf, and, before the discovery of oil, fishing in Kuwait was a leading industry. Shrimp was one of the few commodities besides oil that Kuwait continued to export after World War II. Shrimp production, however, was devastated by the environmental havoc wreaked in the gulf by the 1991 war.

In an effort to curb economic stagnation, the annual festival, popularly known as "Hala February" is widely celebrated in the country marked by major slashing of prices and other shopping extravaganza. This attracts nearly 150, 000 visitors from the neighbouring Gulf states leading to tight hotel reservations and busy flight schedules.

With 14 financing companies providing easy credit and convenient payment plans, Kuwait has witnessed a consumer boom like never before. Spending on automobiles, electronics, household goods, real estate and tourism has graphed up. But the most driving factor to this unprecedented growth is not the easy installment or improved loan services rather the fall of the Saddam regime in 2003