Why is oil used in transformers for insulation and cooling?

Oil is used in transformers primarily because it performs two critical functions simultaneously: electrical insulation and heat dissipation. As an insulating medium, transformer oil fills the spaces between live parts and grounded components, significantly increasing dielectric strength and preventing internal electrical breakdown. At the same time, oil circulates naturally or through pumps, transferring heat away from the core and windings to radiators or cooling surfaces. This cooling action limits temperature rise, slows insulation aging, and allows the transformer to operate safely under high electrical and thermal loads.