The Al-Fulaij recharge dam is located on the Al Batinah coast in Oman and was constructed in 1992. The dam is about 3.3 km long and 7.7 m high with a storage capacity of 3.7 million cubic meters of water. It is an earthfill dam with silty, sandy gravel fill in the embankment. Excessive seepage of between 5,000–12,500 m3/day was observed during floods in 1993, and several sinkholes were noticed close to the upstream toe. Remedial work consisting of an upstream blanket and a cutoff trench wall was performed in 2000. However, these remedial measures failed and almost the same seepage was noticed again during the impoundment. This paper investigates possible causes of the seepage using a finite element model. The input data for the model were collected from site investigations and field records during the construction and monitoring of the dam. The study reveals that the most probable cause of the excessive seepage is the presence of a permeable soil layer underneath the dam due to the dissolution of the gypsum material.