Wall Street blames everything on the housing slump and the sub-prime credit crisis. Of course, these are significant. But the drop in housing starts, sales, and prices has been going on for nearly two years, without crunching down the economy.

It’s the oil shock that has brought us perilously close to recession. In fact, despite a slight rise in GDP, nonfarm corporate payrolls have declined for seven consecutive months while private payrolls have fallen for eight straight months. A year ago the unemployment rate was 4.5 percent. Today it’s 5.7 percent. Topping it off, the inflation rate has climbed from 2 to 4 percent over the past year.

Right now the recession call is still an open question. But the economic damage caused by skyrocketing energy prices is a no-brainer.

When President George W. Bush eliminated the executive moratorium on offshore drilling a month ago, effectively launching the drill, drill, drill offensive, oil was close to $150 a barrel. Since then, the barrel price has dropped to nearly $120 as futures-market traders anticipate a major shift in federal drilling policy.

Over at the Intrade pay-to-play prediction market, the probability of an offshore drilling bill passing in 2008 is now handicapped at 50 percent, up from 25 percent only a few days ago. Clearly, investors know market prices will move well before we see actual new energy supplies from offshore drilling. The likelihood of greater energy supply will incentivize those much-vilified traders to slash barrel prices much more, bringing relief at the pump and earning the gratitude of a whole nation.

At the same time, those wrongheaded Democratic leaders, from Obama to Reid to Pelosi, will see their political fortunes plummet deep into bear-market territory.