The early and mid-1980s saw economic trouble for Libya; from 1982 to 1986, the country's annual oil revenues dropped from $21 billion to $5.4 billion. Focusing on irrigation projects, 1983 saw construction start on "Gaddafi's Pet Project", the Great Man-Made River; although designed to be finished by the end of the decade, it remained incomplete at the start of the 21st century. Military spending increased, while other administrative budgets were cut back. Libya had long supported the FROLINAT militia in neighbouring Chad, and in December 1980, re-invaded Chad at the request of the Frolinat-controlled GUNT government to aid in the civil war; in January 1981, Gaddafi suggested a political merger. The Organisation of African Unity (OAU) rejected this, and called for a Libyan withdrawal, which came about in November 1981. The civil war resumed, and so Libya sent troops back in, clashing with French forces who supported the southern Chadian forces. Many African nations had tired of Libya's policies of interference in foreign affairs; by 1980, nine African states had cut off diplomatic relations with Libya, while in 1982 the OAU cancelled its scheduled conference in Tripoli in order to prevent Gaddafi gaining chairmanship. Proposing political unity with Morocco, in August 1984, Gaddafi and Moroccan monarch Hassan II signed the Oujda Treaty, forming the Arab-African Union; such a union was considered surprising due to the strong political differences and longstanding enmity that existed between the two governments. Relations remained strained, particularly due to Morocco's friendly relations with the U.S. and Israel; in August 1986, Hassan abolished the union. Domestic threats continued to plague Gaddafi; in May 1984, his Bab al-Azizia home was unsuccessfully attacked by a joint NFSL–Muslim Brotherhood militia, and in the aftermath 5000 dissidents were arrested.

How much money did Libya earn from oil in 1986?