This study is an attempt to invistigate and discuss the view that was often mentiened in the European sources that Oman witnessed political anarachy and commercial collapse after the Caning Aribtration of 1861. This study also tackles the trade relations of Oman and its maritime activity during this period which was of special significance due to the crucial events both in Oman and the international scene preceding the First World War. The study consists of an introduction, a preface, three chapters, conclusion, appendices and the bibliography, The preface deals with the strategic location of Oman and its contribution to maritime activity. The first chapter examines the internal political conditions in Oman and its impact on its commercial relations with foreign powers. The second chapter concentrotes on the arms trade and its role in enharcing the budget and the national income. This chapter also discusses the measures adopted by the British to prohibit and stop the Arms trade and the political and economic results of this British policy. The third and final chapter tackles the commercial and trade exchange activity, the exports and imports, impact of the introduction of steam transportation on trading activity and the role played by Indian merchants in the economic life and development of foreign trade in Oman. The study ends with certain conclusions some of which are : I. There is a larg and continuous tradition of trade relations between Oman and the outside world, II. The foreign trade of Oman was deeply influenced by its internal conditions and its relations with the foreign powers. III. The arms trade contributed greatly in increasing its financial income and the development of its foreign trade. IV. The local and traditional ships and means of the sea transporation continued to play its role in maritime activity and commercial exchange despite the appearance of the steam ships. This refutes the claim in the European sources that steam ships had ended the role of the local means of transport and resulted in the collapse of the activity of foreign trade in Oman