Thermal recovery processes such as cyclic steam stimulation and steam assisted gravity drainage induce significant shear dilation in oil sand formations. Shear dilation deformation results in an increase in pore volume, thereby enhancing permeability. In previous studies, it was assumed that the change in absolute permeability is a function of porosity or volumetic strain, which is. in turn, a function of mean or minimum effective stress. In such conventional semi-empirical correlations (e.g., the Kozeny-Carman equation), the changes in permeability are equal in all directions even though the changes in strains are different in each direction. This paper proposes a new deformation-dependent permeability model for the shear dilation of oil sands. This model is based on a granular interaction approach. The fundamental approach accounts for how pore throat areas along flow channels and grain contacts change with shear dilation. This allows one to quantify the evolution of changes in permeability in one direction under continuous shearing. The model explicitly states that the permeability changes are highly anisotropic, dependent on the induced principal strains. Comparison with experimental data is presented to show the validity of the proposed model. In addition, the proposed model is extended and formulated in a generalized 3D tensor notation so that it can be implemented into existing reservoir or coupled geomechanics-reservoir simulators.