Why is oil used in transformers for insulation and cooling?

Oil is used because it simultaneously improves electrical insulation and removes heat from internal components. As a dielectric, clean and dry oil increases breakdown strength around windings, leads, and tap changer parts, reducing the risk of arcing and partial discharge. As a coolant, it circulates through ducts and radiators to carry heat away from the windings and core, keeping hot spot temperatures within design limits. Oil also helps protect solid cellulose insulation by reducing oxygen exposure in sealed or conservator systems. Because transformer life is strongly tied to temperature and moisture, good oil condition is a reliability cornerstone.