The United States lifts economic sanctions imposed on Libya 18 years previously, as a reward for its cooperation in eliminating weapons of mass destruction.

Muammar Gaddafi became the de facto leader of Libya on 1 September 1969 after leading a group of young Libyan Army officers against King Idris I in a bloodless coup d'tat. After the king had fled the country, the Revolutionary Command Council (RCC) headed by Gaddafi abolished the monarchy and the old constitution and established the Libyan Arab Republic, with the motto "freedom, socialism and unity".After coming to power, the RCC government initiated a process of directing funds toward providing education, health care and housing for all. Public education in the country became free and primary education compulsory for both sexes. Medical care became available to the public at no cost, but providing housing for all was a task the RCC government was unable to complete. Under Gaddafi, per capita income in the country rose to more than US$11,000, the 5th highest in Africa. The increase in prosperity was accompanied by a controversial foreign policy, and there was increased domestic political repression.During the 1980s and 1990s, Gaddafi, in alliance with the Eastern Bloc and Fidel Castro's Cuba, openly supported rebel movements like Nelson Mandela's African National Congress, Yasser Arafat's Palestine Liberation Organization, the Provisional Irish Republican Army and the Polisario Front (Western Sahara). Gaddafi's government was either known to be or suspected of participating in or aiding attacks by these and other proxy forces. Additionally, Gaddafi undertook several invasions of neighboring states in Africa, notably Chad in the 1970s and 1980s. All of his actions led to a deterioration of Libya's foreign relations with several countries, mostly Western states, and culminated in the 1986 United States bombing of Libya. Gaddafi defended his government's actions by citing the need to support anti-imperialist and anti-colonial movements around the world. Notably, Gaddafi supported anti-Zionist, pan-Arab, pan-Africanist and Arab and black civil rights movements. Gaddafi's behavior, often erratic, led some outsiders to conclude that he was not mentally sound, a claim disputed by the Libyan authorities and other observers close to Gaddafi. Despite receiving extensive aid and technical assistance from the Soviet Union and its allies, Gaddafi retained close ties to pro-American governments in Western Europe, largely by courting Western oil companies with promises of access to lucrative Libyan energy sectors. After the 9/11 attacks, strained relations between Libya and the West were mostly normalised, and sanctions against the country relaxed, in exchange for nuclear disarmament.

In early 2011, a civil war broke out in the context of the wider "Arab Spring". The rebel anti-Gaddafi forces formed a committee named the National Transitional Council on 27 February 2011. It was meant to act as an interim authority in the rebel-controlled areas. After killings by government forces in addition to those by the rebel forces, a multinational coalition led by NATO forces intervened on 21 March 2011 in support of the rebels. The International Criminal Court issued an arrest warrant against Gaddafi and his entourage on 27 June 2011. Gaddafi's government was overthrown in the wake of the fall of Tripoli to the rebel forces on 20 August 2011, although pockets of resistance held by forces in support of Gaddafi's government held out for another two months, especially in Gaddafi's hometown of Sirte, which he declared the new capital of Libya on 1 September 2011. The fall of the last remaining sites in Sirte under pro-Gaddafi control on 20 October 2011, followed by the subsequent killing of Gaddafi, marked the end of the Libyan Arab Jamahiriya.

The name of Libya was changed several times during Gaddafi's tenure as leader. From 1969 to 1977, the name was the Libyan Arab Republic. In 1977, the name was changed to Socialist People's Libyan Arab Jamahiriya. Jamahiriya was a term coined by Gaddafi, usually translated as "state of the masses". The country was renamed again in 1986 as the Great Socialist People's Libyan Arab Jamahiriya, after the 1986 United States bombing of Libya.

Economic sanctions are commercial and financial penalties applied by one or more countries against a targeted self-governing state, group, or individual. Economic sanctions are not necessarily imposed because of economic circumstances—they may also be imposed for a variety of political, military, and social issues. Economic sanctions can be used for achieving domestic and international purposes.The efficacy of sanctions is debatable—there are many failures—and sanctions can have unintended consequences.Economic sanctions may include various forms of trade barriers, tariffs, and restrictions on financial transactions. An embargo is similar, but usually implies a more severe sanction.

An embargo (from the Spanish embargo, meaning hindrance, obstruction, etc. in a general sense, a trading ban in trade terminology and literally "distraint" in juridic parlance) is the partial or complete prohibition of commerce and trade with a particular country/state or a group of countries. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is imposed. Embargoes are generally considered legal barriers to trade, not to be confused with blockades, which are often considered to be acts of war. Embargoes can mean limiting or banning export or import, creating quotas for quantity, imposing special tolls, taxes, banning freight or transport vehicles, freezing or seizing freights, assets, bank accounts, limiting the transport of particular technologies or products (high-tech) for example CoCom during the Cold War. In response to embargoes, a closed economy or autarky often develops in an area subjected to heavy embargoes. The effectiveness of embargoes is thus in proportion to the extent and degree of international participation. Embargoes can be an opportunity for some countries to develop self-sufficiency.

Since the mid-1990s, United Nations Security Council (UNSC) sanctions have tended to target individuals and entities, in contrast to the comprehensive embargoes of earlier decades.