Prime Minister Anthony Albanese announced plans to look into building Australia's third oil refinery in WA, with $4 million set aside for a pre-feasibility study.
The study would examine locations for the facility, which would be the first refinery to be built in Australia since the 1960s should it get financial backing.
The facility would join the nation's two existing refineries in Brisbane and Geelong and would be built by WA industrial company Perdaman.
"It would create a major boost for local jobs and manufacturing along with our sovereign capability," Mr Albanese told reporters in WA on Tuesday.
"Building an oil refinery here on the west coast would obviously build our resilience as a nation, as well as particularly benefit Western Australia."
The Chamber of Commerce and Industry WA welcomed the announcement, with its chief executive Will Golsby saying it would help protect against future oil shocks.
"It's absolutely vital that everything is on the table when it comes to establishing secure and sovereign oil refining capabilities," he said.
"As the world becomes more uncertain, it's important that we take decisive action to protect our economy from future shocks."
But former BP regional president and Climate Council member Greg Bourne said the economic case to build the facility did not stack up.
"Building a refinery makes no commercial sense and that's why so many refineries have already closed," he said.
"Building a new refinery would cost billions, take up to a decade to build and require ongoing subsidies to run it.Â
"All this public money for no noticeable reduction in our reliance on imported oil."
The US-led war on Iran, launched in February, has caused global oil prices to skyrocket after the effective closure of one of the world's most important oil corridors.
About one fifth of the world's oil transits through the Strait of Hormuz.
Fuel supplies, refining capability and fertiliser have all been impacted by the ongoing conflict in the Middle East.
The investigation is the first agreement signed under the federal government's $10 million support for feasibility studies into new or existing fuel refining capabilities, announced as part of a $15 billion fuel security package.
But the prime minister put the brakes on extending cuts to the fuel excise when the discount runs out on Sunday.
The measure, put in place in response to the rising fuel costs driven by the Iran war, reduce the cost at the bowser by 32 cents a litre, before it was tapered down to 16 cents in July.
Mr Albanese said other cost-of-living measures were in place.
"We are conscious of the pressure that families are under," he said.
"We have halved the cut in the fuel excise. We are also have looked at other ways in which we can provide cost-of-living relief."
Opposition Leader Angus Taylor welcomed plans to build the third refinery, but should not the only part of a fuel security strategy.
"Labor cannot promise a new refinery while its carbon tax is set to cost Australia's last two refineries in Brisbane and Geelong $165 million by 2030," he said.
WA Premier Roger Cook said the new refinery would rebuild his state's capacity to produce and distribute its own fuel.
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