Scott Morrison has played down the prospect of tensions between the United States and Iran escalating into a full-blown war.
Australian troops and diplomats were caught in the crosshairs this week when Iran launched missile attacks on US-led military bases in Iraq.
No Australians were injured.
The United States responded with economic sanctions against Iran rather than military action.
Hostilities between the two countries appear to have eased and the prime minister dismissed concerns of a military conflict.
“I think that is getting well ahead of events and it’s not helpful to speculate,” Mr Morrison told 3AW radio.
“What’s helpful to do is constantly observe and monitor the situation, get the best possible intelligence and information, and work closely with our coalition partners, which is what we’re doing.”
Australia has hundreds of troops in Iraq as well as diplomats in Baghdad.
Mr Morrison said they remained focused on countering Islamic State, otherwise known as Daesh.
“Let’s not forget it is Daesh that is the terrorist organisation that has sought to wreak havoc on so many parts of the world including in Australia,” he said.
“That mission remains very important.”
The rocket attack came in response to the US killing of Iranian general Qasem Soleimani.
Despite the escalation in the US-Iran conflict, Australia still plans on sending a Navy warship to the Strait of Hormuz in the Middle East next week.
HMAS Toowoomba will be part of a US-military mission to protect oil tankers off the coast of Iran.
Australia has also not ruled out following the US in imposing further economic sanctions on Iran.