The discovery of oil in 1934 transformed the economy. Kuwait's enormous oil reserve of 94 billion barrels and huge quantities of natural gas have provided the base for an economic presence of worldwide significance. The Kuwaiti standard of living was among the highest in the Middle East and in the world by the early 1980s. Oil wealth has stimulated trade, fishery development, and service industries. The government has used its oil revenues to build ports, roads, an international airport, a seawater distillation plant, and modern government and office buildings. The public has also been served by the large-scale construction of public works, free public services, and highly subsidized public utilities, transforming Kuwait into a fully developed welfare state. Prudent management of budgetary allocations and development priorities, as well as substantial interest from overseas investment, helped cushion the adverse impact of the collapse of the Souk al-Manakh—an unregulated curbside securities market—in 1982, the collapse in world oil prices during the mid-1980s, and the 1980–88 Iran-Iraq war. In addition, acquisition in Western Europe of 5,000 retail outlets (marketed under the name "Q-8") and expansion into the manufacture and sale of refined oil products bolster the Kuwaiti economy.
Oil extraction and processing accounts for about 50% of GDP, 90% of export earnings, and 75% of government revenues. Kuwait's economy suffered enormously from the effects of the Gulf War and the Iraqi occupation, which ended in February 1991 with the destruction of much of Kuwait's oil production capacity and other economic infrastructure. The damage inflicted on the economy was estimated at $20 billion. Real growth in the GDP was estimated at 22.4% in 1993, 1.1% in 1994, and 3% in 1995. Economic improvement from 1994 to 1997 was largely from growth in the industrial and financial sectors. The "Difficult Debts Law," which aided investors with losses incurred during the Iraqi invasion and an informal stock crash in the early 1980s significantly improved investor confidence. Reversing this trend, the GDP shrank 16% due to a large decline in world oil prices. The loss was more than restored by the recovery of oil prices beginning in the second half of 1999. GDP rose 17.22% in 1999, and then an extraordinary 26.88% in 2000. Inflation rose to4.7% in 1999, but declined to 2.7% in 2000. Gross domestic product growth in 2001 was 5.43% and inflation was down to 2%. From 1999 to 2001 per capita GDP rose from $13,082 to $17,880. Kuwait's portfolio investments have generally served to double the income it receives from its basic oil industry.