In Korea, low oil prices have long been considered a blessing, as the country has to import crude oil to meet more than one-third of its energy demands. Korea suffered an economic crisis in 1979 due to a surge in oil prices following the second oil shock. But it enjoyed an unprecedented economic boom in the late 1980s thanks to low oil prices.

This perception is changing. Crude oil prices have fallen to 7-year lows following the failure last Friday of OPEC members to set an oil production ceiling. But paradoxically, cheap oil is hurting Korea’s exports and slowing its economic growth.

On Tuesday, West Texas Intermediate, one of the three crude oil benchmarks, traded at below $38 a barrel. The figure represented a 60 percent drop from the WTI’s 2014 average price of $93.1.

Behind the steep fall in crude prices is a global oil glut. Major oil producing countries, including those in OPEC, the United States and Russia, have maintained oil production despite a continued decline in crude prices.

These countries have different reasons for not cutting their oil output. Russia, for instance, is known to be eager to maintain its oil revenue, while Saudi Arabia appears to be determined to stage a price war against U.S. shale producers.

This implies crude oil prices are likely to fall further in the future. Goldman Sachs has predicted WTI prices will plunge to the $20 range next year.

Low oil prices are generally beneficial to crude-importing countries. They cut their import bills and contribute to stabilizing consumer prices.

But excessive falls in oil prices are a mixed blessing for a country like Korea, which relies on exports for economic growth.

Cheap oil reduces the revenues of oil producing countries, thereby weakening their demand for Korea’s major export items, including ships, construction services and steel products.

Falling oil prices also slash Korea’s export revenues by lowering the prices of its goods and services. As a result, Korea has failed to reach the $1 trillion mark in terms of the combined value of its exports and imports.

Faltering exports put a drag on economic growth. In the first three quarters of 2015, negative export growth knocked 1 percentage point off Korea’s GDP growth.   

Cheap oil will also affect the global economy negatively. Advanced countries are worried as a continued decline in oil prices will exacerbate deflationary pressures.

In the eurozone, some countries have already been suffering from deflation. In these countries, low oil prices could fuel deflationary expectations, leading people to defer purchases in anticipation of further price falls. This will hamper efforts to stimulate spending.

Korea also needs to guard against deflation as consumer inflation is slowing down. Consumer prices rose 1.3 percent each in 2013 and 2014, but slowed to a mere 0.6 percent in the first 10 months of this year.

As oil is expected to stay cheap for some time, the government needs to take steps to defuse deflationary pressures.

Policymakers are also advised to step up monitoring of the global financial markets as such oil producing countries like Brazil are in crisis due partly to their dwindling oil revenues.

Emerging economies may suffer disruptive capital outflows as oil producing countries withdraw their portfolio investments to make up for the drop in their oil revenues.

Korea also needs to ratchet up efforts to adapt to the shift in the world’s energy paradigm away from oil. At the same time, Korea’s industrial profile needs reshaping as many of its major industries are closely linked to oil.