Students and researchers at Purdue University have been working on the problem of replacing petroleum with water in hydraulic systems. Recently they announced what is thought to be the first vehicle to use water as a hydraulic fluid in all its systems including power steering, power brakes, and transmission. The vehicle is a modified power mower. Water hydraulics requires higher pressures but offers many advantages such as higher heat rejection, lower costs, fire prevention, and enviromental safety.

Purdue's web site offers a paper detailing current research on Water Hydraulics at the University but it's only available in Microsoft Word format (so get those virus checkers turned on before downloading).