Why exactly did Saddam invade Kuwait in the first place? On a whim?
1) Kuwait was slant drilling into Iraq and stealing oil
2) Kuwait reneged on a $multi-billion pledge to help Iraq fight a war with Iran during the 1980's.
As a solution to the above, Iraq offered this solution... Kuwait must stop stealing Iraq oil. In compensation for the stolen oil, Iraq wanted two small unoccupied Kuwaiti islands in the gulf to build an oil terminal which could be defended from attacks by Iran. They also wanted the money Kuwait promised during the war and still hadn't paid.
Kuwait refused to compensate Iraq for the oil theft and refused to pay the money they promised during the Iran/Iraq war. (Kuwait made this pledge during the war along with Saudi Arabia, when Iraq started loosing to Iran and they needed money to buy more weapons) In response, Iraq moved troops to the border with Kuwait. Nearly everyone thought at the time that Iraq was just applying pressure on Kuwait.
To defuse the situation, the US sent envoy April Glaspie to Iraq. wikileaks has some new information regarding this meeting, but basically the US screwed up diplomatically. It may have been deliberate. Whether or not the US gave Iraq a green light to invade Kuwait is debatable. The US statements made during this meeting indicated that the US would not interfere in the dispute between Kuwait and Iraq. What isn't debatable is that the US did not clearly say what it would do if Iraq invaded Kuwait. Throw in a few lost in the translation problems and cultural differences and Iraq invades Kuwait.
Here is some background information:
What WikiLeaks REALLY tells us about the Glaspie-Hussein Meeting | Stephen M. Walt
Transcript of the meeting:
APRIL GLASPIE TRANSCRIPT