We use water all the time when working with leather. You can't tool leather without casing (wetting) it, nor can you properly mold it to shape. When you send you leather garments to the cleaners, they send them off to central sites that throw them into huge washing machines. (Sounds crazy, right? But true!) Water does dry out leather, but it's pretty easy to rejuvenate it with the proper ingredients. For a strop or a sheath, just a few drops of any good leather conditioner will do the job. I've been using ArmorAll on two custom made leather jackets that I had made for myself 25 years ago, and they both look and feel brand new!
Stitchawl