Why are transformers filled with oil for insulation and cooling?

Oil improves dielectric strength and reduces partial discharge by filling internal gaps and increasing insulation margin at high voltages. It also removes heat effectively, carrying thermal energy from windings to radiators and coolers. This enables compact, high MVA designs with controlled hot spot temperatures. Oil additionally supports diagnostics via dissolved gas analysis, allowing early fault detection. Air insulation would require larger clearances and would cool less effectively, increasing size, temperature rise, and risk of insulation stress in high voltage equipment.