It’s not the presence of H2O molecules that is the problem, it’s when so much water gets in your lungs that it physically blocks enough air from entering the lungs.
Air is a mixture of gases, water vapor being a major component. Ambient air is actually only 21% oxygen. Life has evolved to extract sufficient oxygen from this mixture. Breathing very dry air is actually uncomfortably because it dries out your airways which require some moisture to function optimally. Your nose is an ~impressively~ good humidifier to minimize this problem.
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