Domestic Economy

Anti-Smuggling Drive to Promote Trade

International sanctions strengthen non-state entities and weaken the “normal” economies
Locally known as “shooties”, smugglers in the Oman’s Khasab—an exclave of Oman bordering the UAE—say their business is in decline.Locally known as “shooties”, smugglers in the Oman’s Khasab—an exclave of Oman bordering the UAE—say their business is in decline.

Trade between Oman and Iran dates back millennia, according to Marc Valeri, a political scientist and expert on Persian Gulf countries.

In the past, trade was illicit and conducted by smugglers, as longstanding international sanctions on Iran made financial transactions through legal channels difficult. But at present, smugglers may face a hard time now that the sanctions have been lifted over Iran's compliance with the terms of the nuclear deal signed last year, reads an article published by Al Jazeera. Below is the full text:

Zia, a 23-year-old Afghan who illegally migrated from Iran to Oman in 2010, was lying down in a park when his phone suddenly vibrated.

"This was one of my clients in Iran," he said, as he juggled between fluent Arabic and Farsi. "He was asking me to send him five air-conditioners."

Zia lives in Musandam, an Omani province that borders the UAE and is the closest point on the Arabian Peninsula to Iran. It was midnight and Zia had already been working all day long.

"My job is to receive the merchandise coming from Dubai or Ras al-Khaimah [in the UAE], to store it in several warehouses-and then, in the morning, I load it in pickup truck and give it to Iranian smugglers who come to the port on speedboats," he explained.

The types of goods smuggled to Iran include phones, televisions, clothing, shoes, cigarettes and household appliances among others.

Smuggling accounts for about one-third of Iranian imports, estimates Thierry Coville, an Iran specialist with the Paris-based Institute for International and Strategic Relations. Data from the Islamic Republic of Iran Customs Administration showed that smuggling through the Strait of Hormuz into Iran generates almost $5 billion a year, Mehr News Agency reported in 2011.

> Over-Protection, Over-Taxation

According to Bernard Hourcade, the former director of the Institut Francais de Recherche en Iran, this smuggling is also driven by the fact that "the Iranian state, pushed by the conservatives, over-protects its industry and economy, and over-taxes all the consumer goods that the Iranian economy could produce on its own".

Yet the smuggling has a revitalizing effect on Musandam Province, which is separated from the rest of Oman by the UAE.

"Musandam is a very remote region, which is consequently neglected by centralized development. These activities are an enormous economic breath of fresh air," said Valeri.

In Oman's capital of Muscat, Commander Ali, who works for the Oman Maritime Security Center and declined to give his last name, told Al Jazeera that "these [smuggling] speedboats are illegal, as they enter the Omani waters without permission".

However, in Khasab, Musandam Province's capital, smuggling activity seems to be tolerated. Speaking on condition of anonymity, a member of the Royal Oman Police's Coastguard said the state "orally asks them [members of the coastguard] to behave like this business was fully legal".

However, some smugglers have fallen on hard times recently. One wealthy luxury car smuggler in Khasab, who asked to remain anonymous, said his business with Iran has slowed down.

"I didn't sell any cars for three months. Before, I used to sell eight cars a month." The man buys luxury cars from the UAE, then ships them to Iran through the Strait of Hormuz.

"Four of them sank in the middle of the sea,” he recounted, “because of the storms, the waves, and the wind."

Slouched on the dusty tiled floor of his bedroom, surrounded by dirty laundry and empty packs of cigarettes, a smuggler named Ali Shahi confirmed that the smuggling business is in decline.

"When I started, in 2001, I had three warehouses and 15 trucks. Now, I work with one warehouse and two trucks only," he said.

> New Taxes

Shahi blames new taxes, not the lifting of sanctions on Iran, for his business' downfall. He said it costs him $130 to legally transfer a truckload of goods from the UAE to Khasab and that he must pay an additional $30 in border tax. Boxes are later shipped to speedboats for a $31 fee, including $15 in tax for the Omani government.

"If business is slow these days, it's mainly caused by the poor relationship between Iran and the UAE," said Shahi.

Until 2009, a lorry crossing the UAE-Musandam border was tax free. From 2009 onward, the crossing costs about 100 Emirati dirham ($27) and one Omani rial ($2.6) on the Omani side.

While smugglers agreed that any thaw in relations between Iran and the international community was likely to affect their activities, they, nonetheless, did not specify how.

On the other side of the Strait of Hormuz, smuggling activities remain a source of controversy, especially given Iran's economic conditions: Mehr News Agency reported in 2011 that every $1 billion in smuggled goods cost Iran 50,000 to 60,000 jobs. Both Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei and other Iranian officials have recently made statements about the need to combat smuggling.

In August, 13 smuggled luxury cars were seized and ordered to be destroyed by the authorities. Later the smuggler was allowed it to repatriate it at his own cost.

Hourcade said that although the Iranian government is concerned about the smuggling problem, groups that profit from smuggling constitute powerful lobbies in Iran.

"The international sanctions strengthen the non-state entities and weaken the 'normal' economies," he said.

In Khasab, many wonder whether the business experience acquired by the smugglers could in the future be harnessed to bolster legal trade between the two countries.

"The question is really how to make it [trade activity between Khasab and Iran] more," said Houchang Hassan-Yari, director of International Relations and Security Studies at Oman's Sultan Qaboos University.

Following the Iran deal, which is thawing its relations with the international community, "there could be less space for smugglers to continue their activities", said Hassan-Yari. "The hope is that today's smugglers become tomorrow's legal traders."