While secretly giving financial assistance to Iraq, he avoided direct confrontation with Iran. This was especially difficult considering that numerous terrorist activities in Kuwait, including an attempt at the amir's life, were blamed on pro-Iranian Kuwaiti Shiites.

Iranian threats to navigation in the Persian Gulf led Kuwait to ask for help from its regional neighbors in the Gulf Cooperation Council with whom it had a joint security pact. When that effort proved fruitless, Kuwait resorted to the U.N. Security Council for help to keep this international waterway open and safe from Iranian attacks. The result was the reflagging of all ships with the American flag. To avoid antagonizing its neighbors, Kuwait announced that its agreement with the United States was a purely commercial one and did not involve joint security commitments with the United States. Although successful during the Iran-Iraq war, the amir's shrewd political maneuvering—or lack of it—did not save his country from an Iraqi invasion on August 2, 1990.

Like his predecessors, Shaykh Jaber had an uneasy relationship with the Kuwaiti parliament, the National Assembly (N.A.). Nevertheless, he managed not to alienate the Kuwaiti opposition, led by the leading merchant families of Kuwait. This is evidenced by the fact that the opposition stood in firm support of the amir and the ruling family, Al-Sabah, and refused to cooperate with the Iraqis during the 1990 Iraqi invasion of Kuwait. When Shaykh Jaber came to power, the N.A. had already been dissolved (in 1976). Responding to petitions calling for the N.A. to resume, Shaykh Jaber called for general elections in 1981. Astute government maneuvering, however, resulted in a N.A. dominated by 24 members (out of a total of 50) of bedouin background and strong loyalty to the Al-Sabah. Nevertheless, the N.A. continued to challenge the Al-Sabahs' discretion in matters of national concern.

In August 1982, after the disastrous fall of the unofficial Kuwaiti stock market, Souk Al-Manakh, the N.A. officially accused members of the Al-Sabah family of using their influence to make huge personal profits during the market's existence. The N.A. also objected to the government's handling of the financial crisis resulting from the stock market crash. Huge personal debts were paid out of public funds, eventually costing the government approximately $90 billion. After the 1985 election, which brought major opposition leaders back into office, this tension between the Al-Sabah and the N.A. reached a high point. The new N.A. called for the resignation of the minister of interior and minister of oil, both of the Al-Sabah family, blaming them for the economic and security problems in the country. After the Cabinet resigned, Shaykh Jaber challenged the Assembly's new leadership by forming a new Cabinet and including in it the same figures that had been implicated in the Souk Al-Manakh scandal. Furthermore, to reinforce his personal and the Al-Sabahs' ultimate power in the country, he dissolved the N.A. indefinitely, suspended the constitution, and imposed press censorship. Only in 1990 were elections for the N.A. allowed again (the voting franchise limited to men who can trace their Kuwaiti roots back to 1920 or earlier). In this way Shaykh Jaber was able to reassert for himself and the Al-Sabah family their dominating position in the country.

During his rule, Shaykh Jaber continued to practice the government's traditionally paternal relations with its citizens. A big portion of the oil revenues was transferred to the private sector through current expenditures (including social allowances and price subsidies), land purchases, and capital expenditures in development projects. Also, the government's stepping in to save the "small" investors in the stock market crash of 1982 is another example of this calculated benevolence. Here again, the old system of personal governing prevailed over the institutions of a modern state. In this way the amir managed to maintain the support and loyalty of his people, which was crucial in maintaining national unity in the face of Iraqi aggression.

When the amir returned from the safety of Saudi Arabia, where he had fled during the Iraqi invasion, to a liberated Kuwait in March 1991 he found a devastated land. Almost all of the 700 oil wells burned fiercely, set ablaze by retreating Iraqis. (It was one of the great manmade disasters of the 20th century). Reconstruction of Kuwait was estimated to cost from $60 to $100 billion, spent over several years' time. When the restoration of basic services moved slowly and there were no steps to liberalize the government, murmurs of popular discontent were heard, probably the most expressed dissatisfaction in the 300 years of rule by the Al-Sabah family. The discontent increased when the amir announced on June 2, 1991, that there would be no elections until late 1992. Meanwhile, Crown Prince Saad Abdullah Al-Sabah seemed to be in charge of day-to-day administration.