The effect of water in oil is twofold, destrolying both the beneficial physical and chemical properties and characteristics of the oil. This can lead to machine component damage.
1. Physical effect on oil
a. Higher viscosity
b. Reduced load carrying ability

2. Chemical effect on oil
a. Hydrolysis - formation of acids, sludge and varnish
b. Reduced dielectric strength (breakdown voltage)
c. Aeration - foam formation and air entrainment
d. Additive depletion

3. Effect on machinery
a. Corrosioni on metal surfaces
b. Loss of lubrication film strength - increased wear
c. Cavitation
d. Filter plugging