A method of recovering spilled hydrocarbon fluids from a body of water utilizing the increased oleophilic properties of reacted iron particles suspended in a magnetorheological (MR) fluid. The iron particles normally used to create MR fluids, are reacted with an organic compound containing an oleophilic chain end which attaches to the surface of the iron, prior to suspension in a liquid vehicle such as an organic oil. The reacted iron particles in the MR fluid are then applied to and mixed with a hydrocarbon spill on a body of water such as an oil spill, whereby subsequent exposure to a significant magnetic field provides for subsequent recovery of both the reacted magnetic particles and the hydrocarbon spill.