There was no emulsion, there was oiled rust.
Which is exactly what castor oil and water mixed with some rust. Castor oil will emulsify with water and has a consistancy of thin grease. With age it turns redish brown and looks a lot like runs. Yes there was rust there, the engine looke exactly like an engine I have seen submerged under a pond a few days. Except worse. Exactly like what I would expect if someone broght home a submerged engine and left it alone.