Formation water is the water that exists with hydrocarbons in the subsurface. The current work involves the study of the chemical composition and salinity of the formation water obtained from oil wells in the Upper Assam Basin, India. This paper examines the presence of different ions in the formation water as well as the environmental impact that may be caused by the identified ions in the current study. The current work also examined the significant effects of the ions in the formation water on crude oil extraction, such as scaling, corrosion, and wettability alteration. For this, crude oil analysis was also done for the reservoir, and wettability analysis was carried out. Lastly, the paper incorporates Sewage Treatment Operation and Analysis over Time (STOAT) software to investigate how to treat the produced formation water in an effluent treatment plant (ETP) to meet discharge standards and reduce environmental risks. The results of the analysis showed that for the three formation water samples (Well B, Well I, and Well H) that were analyzed, sodium ions (Na+) had the highest concentration in all of them (1007.23 ppm, 2921.544 ppm, and 670.8375 ppm, respectively), followed by potassium ions (K+) (7.9261 ppm, 112.5503 ppm, and 99.7240 ppm, respectively), and calcium ions (Ca2+) (40.7087 ppm, 207.3061 ppm, and 79.0353 ppm, respectively). The identification of these salts presents the chance for scaling conditions to arise if the formation water samples are not well treated before injection into the subsurface reservoir. The findings of the current work finally highlight that an increase in salinity and conductivity and a drop in pH result in a decrease in contact angle and hence a deviation from the oil-wet condition towards the intermediate-to-water-wet condition. Based on STOAT model analysis, the current work finally concludes that the inclusion of three stages of separation, i.e., preliminary, primary, and secondary, helps reduce total suspended solids (TSS) and improve pH, BOD, and COD in the treated water.