New taxes and the lifting of sanctions on Iran could contribute to smuggling’s decline in the Strait of Hormuz.

Khasab, Oman – Trade between this tip of the Arabian Peninsula and nearby Iran – lying only 50 kilometres across the Strait of Hormuz – goes back millennia, according to Marc Valeri, a political scientist and expert on the Gulf monarchies.

In recent years, that trade has been illicit and conducted by smugglers, given the long-standing international sanctions on Iran. But smugglers may face a hard time now that the sanctions have been lifted, due to Iran’s compliance with the terms of the nuclear deal signed last year.

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 United Arab Emirates 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 United Arab Emirates], to store it in several warehouses – and then, in the morning, I load it in pick-up trucks and give it to Iranian smugglers who come to the port on speedboats,” explained Zia.

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

A storage, located few hundreds metres from the port of Khasab, Oman, shows dozens of boxes, on July 26, 2016 [Sebastian Castelier/Al Jazeera]

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 Iranian Customs and Excise Department showed that smuggling through the Strait of Hormuz into the Islamic Republic generates almost $5bn a year, Mehr news agency reported in 2011.

I didn't sell any cars for three months. Before, I used to sell eight cars a month. A car smuggler in Khasab

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 revitalising 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 centralised 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 Centre 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 Coast Guard said the state “orally asks them [members of the coast guard] to behave like this business was fully legal”.

Locally known as ‘shooties’, these men regularly cross the Strait of Hormuz to smuggle various products into Iran [Sebastian Castelier/Al Jazeera]

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.

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 the relations between Iran and the the international community was likely to affect their activities, they, nonetheless, did not specify how.

‘Smugglers quay’ at Khasab, Oman, on July 21st, 2016. Everyday, dozens of Iranian speedboats arrive to pick up products coming from the UAE [Sebastian Castelier/Al Jazeera]

On the other side of the Strait of Hormuz, smuggling activities remain a source of controversy, especially given Iran’s weak economy: Mehr News Agency reported in 2011 that every $1bn in smuggled goods costs Iran 50,000 to 60,000 jobs. Both Supreme Leader 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 burned by the authorities. 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.”