Hydrophobic ionic liquid ferrofluids (ILFFs) are studied for use in electrospray thrusters for microsatellite propulsion under nonatmospheric and in high-temperature environments. We synthesized a hydrophobic ILFF by dispersing sterically stabilized gamma-Fe2O3 nanoparticles (NPs) in the ionic liquid 1-ethyl-3-methylimidazolium bis-(trifluoromethylsulfonyl)imide. A diblock copolymer, C4-RAFT-AA(10)-DEAm60, was synthesized to facilitate multipoint bidentate anchoring to the NP through the acrylic acid block. The DEAm60 layer was incorporated to generate steric repulsion between particles to protect against the aggregation of magnetized particles arising from dipole-dipole attraction. The effect of shearing and variation in the magnetic field strength on the steric repulsion was examined using the DLVO theory. The effect of varying the magnetic field strength and particle concentration on the viscoelastic properties of the ferrofluid was evaluated using rheometry. The viscosity of the ferrofluid increased with the magnetic field strength, indicating that the magnetized particles assembled into a structure. The level of straining required to break down the structure formed by the magnetized particles increased with the magnetic field strength and particle concentration. The absence of particle interlocking during shearing was indicated by the smooth viscosity versus shear rate traces. The DLVO analysis showed that increasing the magnetic attraction between the particles causes the DEAm60 brush layers on the particles to overlap more, resulting in an increase in the steric repulsion. As overlapping increases, osmotic repulsion is caused before progressing to a strong elastic repulsion. The effect of the polymer solubility and particle interaction due to hydrodynamic forces on the steric repulsion was also analyzed.