Soaring prices for gas and coal look set to drive Australian resources exports to a record $349 billion as big economies such as China and Europe battle energy supply crises and the Morrison government faces an internal stoush over whether to adopt stronger emissions reduction targets.

The Department of Industry predicted an extraordinary rally in prices for Australian fossil fuels would more than offset a slump in prices for the nation’s top export, iron ore, but would also exacerbate the inflationary pressures that are growing in the global economy and spooking equity markets.