Abstract

The New York Times explained that the United States increased its dependence on oil from Saudi Arabia by more than 20% last year. The United States Energy Information Administration (U.S. EIA) stated that oil from Saudi Arabia accounted for 14% of the U.S. crude oil and petroleum products in 2012. This is problematic due to the fact that 14% of the U.S. net crude oil and petroleum product imports come from one country, Saudi Arabia. What happens to the U.S. economy when Saudi Arabia manipulates demand and possibly stops exporting oil to the U.S.? Governments, crude oil refining companies, and other stakeholders are finding it necessary to invest in infrastructure and buy crude oil from other nations including Indonesia. The objective of this research is to seek impacts of the U.S. dependency on foreign oil problems by introducing a mixed-integer programming (MIP) model that supports decisions about providing economic and environmental incentives to improve the supply chain (SC) quality of crude oil in Indonesia so that it becomes more cost effective for the U.S. to import crude oil from Indonesia as opposed to other global sources. In order to meet the objective, three specific objectives are investigated such as evaluating the SC factors that determine SC quality of crude oil production, evaluating sampling plans that balance the tradeoffs among various economic and environmental incentives for crude oil suppliers in Indonesia, and evaluating the economic impacts of inspection tools (quality) and environmental incentives (sustainability) tools on operational strategies in supplier networks. The intellectual merit of this research is a MIP model that demonstrates the tradeoffs between SC quality and SC profit for Indonesia and can be expanded to other nations.