In August 2010, it will have been two decades since Saddam Hussein’s Republican Guard annexed Kuwait, briefly turning the small, oil-rich emirate into Iraq’s 19th province.

For the people who have grown up in the two countries in the intervening years, the invasion and subsequent liberation of Kuwait are distant memories.

But it is unlikely that this generation of young men and women will be able to put the recent past entirely behind them.

For Kuwaitis, the economic and environmental damage of the retreating Iraqi army’s policy of setting the emirate’s oil wells on fire is huge. The brutality of the invasion, the estimated 600 men and women kidnapped who never returned, and the destruction of Kuwait City have left psychological scars that run deep.

But Kuwait is a rich country, and can more than afford to support its relatively small population. The emirate was rebuilt quickly and efficiently, and took part in the Gulf’s economic boom during the middle years of this decade thanks to its abundant oil and gas reserves. The next generation of Iraqis face a much tougher road ahead.

They have already survived 20 years or more of war, broken infrastructure, economic sanctions and a 2003 invasion that unseated a vicious dictator but left in its wake a de facto civil war.

Iraq has asked Kuwait to write off the outstanding $25.2bn in war reparations it must pay its rich neighbour through 5 per cent of its annual oil revenues.

Kuwait has justifiably refused until now, citing UN resolutions in its favour. But if the two countries do not want the next generation to replay recent history driven by war, debt and oil, then it is in both their interests to find a compromise and move on.

Kuwait needs to make at least a token gesture and cut the level of reparations. Iraq needs to accept the offer, whatever it is.