Djibouti is greatly affected by events in Somalia and Ethiopia, and, therefore, relations are important and, at times, very delicate. The fall of the Siad Barre and Mengistu governments in Somalia and Ethiopia, respectively, in 1991, caused Djibouti to face national security threats due to the instability in the neighboring states and a massive influx of refugees estimated at 100,000 from Somalia and Ethiopia. In 2000, after 3 years of insufficient rain, 50,000 drought victims entered Djibouti. In 1996 a revitalized organization of seven East African states, the IGAD, established its secretariat in Djibouti. IGADís mandate is for regional cooperation and economic integration.

With the Ethiopia-Eritrea war of 2000, Ethiopia channeled most of its trade through Djibouti. Though Djibouti is nominally neutral, it broke off relations with Eritrea in November 1998, renewing relations in 2000. Eritrea's President Isaias visited Djibouti in early 2001 and President Ismail Omar Guelleh made a reciprocal visit to Asmara in the early summer of 2001. While Djiboutiís President Ismail Omar Guelleh has close ties with Ethiopiaís ruling Ethiopian Peopleís Revolutionary Democratic Front, he has tried to maintain an even hand, developing relations with Eritrea.