Re your red bit, looks like it’s been modified, I suggest the upper hose goes to a catch can, possibly the lower was supposed to be a return from the can but as it will be slightly pressurised when running it wouldn’t work. Try blocking off the lower connection. Make sure your catch can has a decent breather on it.
This hopefully is a link to Dave Andrews site it has loads of useful info and this may be the oil breathing bit! http://www.s262612653.websitehome.co.uk/DVAndrews/wateroil.htm