What is the purpose of oil in a transformer?

Oil in a transformer serves two core purposes: insulation and cooling. Electrically, it provides dielectric strength around live parts, fills voids that could otherwise host partial discharge, and helps suppress arcing. Thermally, it transports heat from windings and core to the tank and radiators through natural or forced circulation. Oil also acts as a diagnostic medium, because dissolved gases, acidity changes, and byproducts reflect internal overheating, discharges, or insulation aging. In sealed designs, oil also helps limit oxygen exposure, slowing oxidation and extending insulation life.