During the Iran–Iraq War, which began with the Iraqi invasion of Iran on 22 September 1980, the United States adopted a policy of providing support to Iraq in the form of several billion dollars' worth of economic aid, dual-use technology, intelligence sharing (e.g., IMINT), and special operations training.Friedman, Alan. Spider's Web: The Secret History of How the White House Illegally Armed Iraq, Bantam Books, 1993. This U.S. support, along with support from most of the Arab world, proved vital in helping Iraq sustain military operations against Iran.Timmerman, Kenneth R. The Death Lobby: How the West Armed Iraq. New York, Houghton Mifflin Company, 1991. The documented sale of dual-use technology, with one notable example being Iraq's acquisition of 45 Bell helicopters in 1985, was effectively a workaround for a ban on direct arms transfers; U.S. foreign policy in the Middle East dictated that Iraq was a state sponsor of terrorism because of the Iraqi government's historical ties with groups like the Palestinian Liberation Front and the Abu Nidal Organization, among others. However, this designation was removed in 1982 to facilitate broader support for the Iraqis as the conflict dragged on in Iran's favour. Of particular interest for contemporary Iran–United States relations is a conspiracy theory alleging that the U.S. government actively encouraged Iraqi president Saddam Hussein to invade Iran following the Islamic Revolution. Proponents of this theory, particularly in the Arab world, assert that there is evidence of the U.S. government having greenlit Saddam's intention to launch the campaign, but no direct documentary proof of such a collusion has been found, and several scholars and American officials have denied that such collaboration was in play prior to the conflict.

U.S. support for Iraq was not covert, especially during the Reagan administration, and was frequently the subject of open sessions in the Senate and the House of Representatives. On June 9, 1992, British-American journalist Ted Koppel reported on ABC News Nightline that the "Reagan/Bush administrations permitted—and frequently encouraged—the flow of money, agricultural credits, dual-use technology, chemicals, and weapons to Iraq."Koppel, Ted. The USS Vincennes: Public War, Secret War, ABC Nightline. July 1, 1992. The decision by the U.S. and the Western Bloc to openly oppose Iran was made less complicated by the fact that the Soviet Union and the Eastern Bloc had also adopted the same position, with both sides seeking to contain the Iranian policy of exporting the Islamic Revolution; Iran's new government, led by Ruhollah Khomeini, had antagonized the Americans and the Soviets (the "Great Satan" and the "Lesser Satan") as part of an effort to mobilize Shia Islamism throughout the Muslim world. According to the Stockholm International Peace Research Institute, more than 90% of Iraqi arms imports during the Iran–Iraq War came from the Soviet Union, France, and China.

Despite the U.S. government's official position, the view of American officials on the conflict was geared towards simply preventing an Iranian victory rather than being enthusiastically supportive of Iraq's ambitions, as encapsulated in a remark by American diplomat Henry Kissinger that "It's a pity they both can't lose." On 20 August 1988, the Iran–Iraq War came to an end by the belligerents' acceptance of United Nations Security Council Resolution 598, which stipulated their return to the status quo of the 1975 Algiers Agreement. The result of the conflict was ultimately inconclusive, though both sides claimed victory; Iraq's drained human and financial resources, including national debt to other countries, would go on to serve as one of the bases for the Iraqi invasion of Kuwait in 1990. As part of the ensuing Gulf War, the U.S. re-designated the country as a state sponsor of terrorism and led a 42-country United Nations coalition to end the Iraqi occupation by force. International sanctions against Iraq, which were first imposed during the Kuwaiti campaign, continued until the 2003 U.S. invasion of Iraq.

U.S. reaction to the conflict

U.S. intelligence sharing with post-Revolutionary Iran Following the Iranian Revolution, the Carter administration continued to see Iran as a bulwark against Iraq and the Soviet Union, and therefore attempted to forge a strategic partnership with the new Interim Government of Iran under Prime Minister Mehdi Bazargan. Chargé d'affaires at the American embassy in Tehran, Bruce Laingen, realized that Iranian officials were acutely interested in U.S. intelligence on Iraq, and convinced Assistant Secretary of State for Near Eastern Affairs Harold H. Saunders to approve an intelligence-sharing liaison with the Iranian government, culminating in an October 15, 1979 meeting between longtime Central Intelligence Agency (CIA) officer George W. Cave and the Iranian Deputy Prime Minister Abbas Amir-Entezam and Foreign Minister Ebrahim Yazdi. Cave told Mark J. Gasiorowski that he briefed Entezam and Yazdi on Iraqi military preparations and covert operations seemingly designed to facilitate a large-scale invasion of Iran, although no final decision had been made (the content of Cave's briefing was corroborated by Laingen, Yazdi, Entezam, and Bazargan). In particular, echoing a March 1979 warning from Pentagon analyst Howard Teicher regarding Iraqi designs on Iran's oil-rich Khuzestan province, Cave pointed out that Iraq had created a front organization that could instigate unrest among Khuzestan's majority–Arab inhabitants—yet Cave emphasized that war could still be avoided if the strength of Iran's armed forces did not continue its post-revolutionary decline.

Cave also urged his Iranian interlocutors to monitor the movement of Iraqi troops using the CIA-built IBEX systems from the reign of the Shah. Although Teicher and Cave's predictions proved accurate, they were the product of circumstantial evidence disputed internally within the U.S. government, and the significance of Cave's briefing has been debated. For example, according to Bureau of Intelligence and Research (INR) analyst Wayne White, who was not aware of the intelligence that informed Cave's briefing: "The Iraqi army was doing little more than continuing its well-known annual schedule of primarily battalion and brigade-level training exercises ... Very little of the Iraqi military was anywhere near the Iraqi-Iranian frontier." Similarly, the head of the Iran desk at the State Department, Henry Precht, stated: "I had no impression at the time that anyone believed Iraq was planning a major attack although we thought that [Iraqi President] Saddam [Hussein] might be stirring up the Kurds. At the time I did not think he would take on his larger and still probably more potent neighbor." On the other hand, Gasiorowski contended that "If Iran's leaders had acted on the information provided in Cave's briefings ... the brutal eight–year [Iran–Iraq War] might never have occurred."

Pre-war relations between Iraq and Iran The Iraqi invasion of Iran in September 1980 was preceded by a long period of tension between the two countries throughout 1979 and 1980, including frequent border skirmishes, calls by Iranian leader Ruhollah Khomeini for the Shia Muslims in Iraq to revolt against the ruling Sunni Ba'ath Party, and allegations of Iraqi support for ethnic separatists in Iran. On June 18, 1979, U.S. chargé d'affaires Charlie Naas asked Yazdi about the deterioration in relations; Yazdi stated he "does not know what might be bothering Iraq ... certainly we have done nothing to bother them." Khomeini had recently condemned Iraq's arrest of Shi'ite leader Muhammad Baqir al-Sadr, but Yazdi claimed this had nothing to do with any effort to export the Islamic Revolution to Iraq: Iran was merely concerned with protecting the sacred Shi'ite sites in Najaf and Karbala. Nevertheless, in a subsequent conversation between Naas and Entezam, it emerged that the latter was unaware of National Iranian Radio and Television's broadcasts denouncing Iraq.

Continuing to seek good relations with Iranian authorities, U.S. officials uncovered considerable evidence of Iraqi support for Kurdish rebels in Iran under the leadership of Jalal Talabani. While these rebels were not considered capable of overthrowing the Iranian government militarily, they were undermining Iranian moderates, prompting Precht to broach the possibility of meeting with Iraqi officials to persuade them that Iraq's support for the Kurds was not in its best interest. Throughout this time, Chris Emery states that Iraq's intentions toward Iran were not entirely clear, as Saddam invited an Iranian delegation to the country following his assumption of the presidency in July, while the CIA concluded in November (despite Cave's warning the previous month) that Iraq sought a diplomatic settlement with Iran. Saddam was willing to work with Iranian moderates such as Yazdi, whom he met in Havana in October, but the collapse of Bazargan's government following the November 4th seizure of the U.S. embassy and initiation of the Iran hostage crisis—and the resulting consolidation of power under Khomeini—"would profoundly change Saddam's decision-making calculus," according to Emery. While the Iraqi archives suggest that Saddam contemplated invading Iran as early as February 1979, he was deterred from doing so until July 1980, at which point post-revolutionary purges had rendered Iran grossly unprepared for the attack. A key July 1980 report by Iraqi military intelligence concluded: "It is clear that, at present, Iran has no power to launch wide offensive operations against Iraq, or to defend on a large scale."

Claims of U.S. involvement and "greenlight" accusations Iranian leaders, including Khomeini and his successor Ali Khamenei, have long espoused a belief that the U.S. gave Saddam Hussein a "green-light" to launch the invasion of Iran. U.S. officials have strongly denied this charge. Joost Hiltermann observes that a U.S. green-light is also "the conventional wisdom in the Arab world." In fact, Iranian suspicions that the U.S. would use Iraq to retaliate for the hostage-taking predated the invasion, as Carter noted in his diary on April 10, 1980: "The Iranian terrorists are making all kinds of crazy threats to kill the American hostages if they are invaded by Iraq—whom they identify as an American puppet." There are several reasons for this perception, including some circumstantial evidence.