While there are a lot of good comments here talking about why water isn’t used, I want to point out that using water as a working fluid is increasing in popularity, though it still suffers from major drawbacks.
The biggest benefits of using water as the working fluid in a hydraulic system are cost of fluid and cost of disposal. Water is obviously pretty cheap most places and earth and fairly easy to purify, but the real cost savings come when your system starts to leak fluid everywhere or just when it comes time to replace the fluid. Water is safe to dump pretty much anywhere. If your hydraulic oil leaks everywhere you have a major environmental issue if you don’t clean it up properly and promptly, which can be pretty expensive. If your hydraulic water system leaks you just have some presumably clean water getting into the environment and the plants don’t care. Cleanup, if it’s even needed, is super cheap because you just need some normal pumps and can just dump the water in the nearest river.
The downsides to water systems mostly come down to temperature range and corrosion/lubrication issues. The temperature thing can be mitigated somewhat by the use of antifreeze additives, but those reduce the cost savings and environmental benefits of using a water system. The corrosion and lubrication issues can be fixed by increasing maintenance, which also increases costs, but many places where temperature isn’t an issue, such as mines, the increased maintenance costs are less than the costs savings on fluid and disposal or the potential costs of a spill of hydraulic oil.
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