Abstract The oil industry faces economic and environmental challenges due to its energy- and water-intensive processes. Surplus residual feedstocks and the water produced via heavy oil upgrading and processing are among the most challenging problems in the oil industry. Utilization these waste materials and a lack of efficient technologies to treat them are the main challenges causing the industry to consider them as waste materials. Existing technologies only add a small value, require high capital investment, and generate high greenhouse gas emissions. Therefore, in this study, we review and highlight the major findings regarding the oxy-cracking process, which is introduced as an alternative beyond combustion, as an environmentally friendly technique for converting these feedstocks into value-added products and also enhances the recyclability of wastewater. Through these residual feedstocks are partially oxidized in basic aqueous media at mild operational temperatures (150–230 °C) and pressures (3.4–5.2 MPa). Several operating conditions have been reported to optimize the conversion and selectivity of the products, and the results showed that the temperature and residence time have significant impacts on the yield and environmental impact. The experimental findings were validated with theoretical calculations, which provided insights on understanding the kinetic behavior based on the radical mechanism. The characterization findings revealed that the oxy-cracking could be a platform for a wide range of products such as humic acids, clean fuel, and carbon nanomaterials, and to recover valuable metals. Moreover, this process could be implemented for treatment of oil sand processes affected water and for decomposing emerging pharmaceuticals.