Industrial machining workshops generate substantial quantities of aluminum wire offcuts and filings that cannot be re-entered into bulk metal recycling circuits, posing both a resource management challenge and a potential environmental burden. This study demonstrates a closed-loop valorization route in which this low-grade aluminum waste is converted into nanostructured aluminum oxide (Al2O3) nanoparticles (NPs) by two scalable synthesis pathways (i) chemo-thermal calcination of precipitated Al(OH)₃ at 1000 °C and 1200 °C for 1 and 4 h, and (ii) direct chemical precipitation via AlCl3/Na2CO3 reaction, and then deployed as a functional additive in water-based drilling fluids (WBDFs) used by the oil and gas industry. Comprehensive characterization by field-emission scanning electron microscopy (FE-SEM), X-ray diffraction (XRD), Fourier-transform infrared spectroscopy (FT-IR), and atomic force microscopy (AFM) confirmed the formation of highly crystalline α-Al2O3 with particle diameters ≤ 40 nm following 4-hour calcination at 1000 °C, at an overall yield of ∼80%. When incorporated into a standard bentonite-based WBDF at concentrations of 0.25–1.00 g per 250 mL, the waste-derived NPs reduced high-pressure high-temperature (HPHT) filtrate volume by up to 33% and low-pressure low-temperature (LPLT) filtrate volume by up to 40.5%, and lowered the coefficient of friction by 19% at the optimal dose, and outperformed a conventional KCl -polymer inhibitor in suppressing bentonite clay swelling (49% reduction vs. water control). These results establish waste-wire-derived Al₂O₃ NPs as a cost-effective, environmentally sustainable drilling-fluid additive that simultaneously advances industrial waste valorization, natural resource conservation, and oilfield operational efficiency.