Defence Minister Richard Marles has unveiled plans to contribute the Royal Australain Air Force E-7A Wedgetail aircraft after a virtual meeting of international defence ministers on Tuesday.
The aircraft, which is a world-leading early warning and control plane, was initially deployed to the region in March to help defend the United Arab Emirates from Iranian strikes.
At the meeting, Mr Marles and his counterparts from more than 40 countries reaffirmed their efforts to support navigation through the waterway under a joint mission led by the UK and France.
Traffic through the Strait of Hormuz has been reduced to a trickle since conflict began in the region when the US and Israel launched strikes on Iran on February 28.
About one-fifth of the world's oil and liquefied natural gas travels through the waterway, over which Iran has asserted control.
While a ceasefire between the US and Iran has been in place since April, hopes for a peace deal have dwindled after US President Donald Trump said on Monday that the ceasefire was on "life support".
It followed Tehran's rejection of a US proposal to end the conflict, as it refuses to budge on a list of demands rejected by Mr Trump.
The multinational mission to secure the Strait of Hormuz was announced by the UK and France in April.
The Wedgetail would only be of use once the waterway has been reopened, Strategic Analysis Australia founder Michael Shoebridge said.
"The Wedgetail is best at spotting and collecting data on things like radar use, missile launches and aircraft movements," Mr Shoebridge told AAP.
"(It would) be very useful in helping to keep participating naval ships safe around the strait as part of a confidence-building force - but only once the Iranians open up the strait.
"If the RAAF aircraft flies over or near Iran, it would be vulnerable."
The aircraft was previously deployed to Poland to provide surveillance and protect supply lines delivering international aid to Ukraine.
Mr Marles stressed the multinational mission to support movement through the strait was "strictly defensive".
"Australia stands ready to support an independent and strictly defensive Multinational Military Mission, led by the United Kingdom and France, once it is established," he said.
The operation is designed to compliment non-military diplomatic and de-escalation efforts, he added.
Treasurer Jim Chalmers acknowledged the costs of a prolonged war for households and businesses, as he released the federal budget on Tuesday.
"War in the Middle East has been pushing up prices, pushing down growth, and punishing Australians," Dr Chalmers said in his budget speech.
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