First realize that you'll never, ever get all of the cosmo out of that wood.
so the tung oil will penetrate and seal the wood, keeping the cosmoline from seeping out but the tung oil itself will dry and not be yucky? I can apply it using 0000 steel wool? When I do this am I looking to rub it deep into the wood?
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It depends on what kind of tung oil you're using. Pure tung oil makes a lousy finish because it never really fully cures like boiled linseed oil (BLO) will. A pure tung oil or BLO finish will seal the wood, but not seal in cosmoline. Cosmo will still bubble out when it gets hot but it won't damage your finish at all. (By the way, it is very hard to get a high-gloss finish using BLO if you're using it correctly.)
If you're using a Tung Oil Finish like Minwax, ace, or Formsby's, what you really have is a wipe-on varnish. (The labeling is screwy.) You'll get a hard, durable finish that is not a true oil finish. That's why it has "high gloss" and "low gloss" varieties. To make it low gloss, they actually add some kind of medium that suspends in the finish and diffuses light to make it less shiny.
If you're using Behr's #600 Scandinavian Tung Oil Finish, you have the best of both worlds. It is a blend of BLO, true tung oil, and driers. It produces a true oil finish with a little of the "hardness" that we want for protection. Cosmo will still be able to boil out and won't destroy the finish.
Here is how to apply a BLO or Behr's tung oil finish: final-clean the wood with acetone or laquer thinner. Rub in the first really wet coat of oil with 0000 steel wool. Let it sit about 15-20 minutes, and then wipe it down with a rag to get the extra oil off. The let it sit overnight. The second coat is applied with a rag and wiped off in 15-20 minutes. Continue doing this until you get the look/level of protection you want. If it's too glossy for your taste, use the steel wool again (always wet with the oil! never dry) and rub it out, then wipe off the oil right away. This will give you very nice warm, burnished look.
Of course, the "correct" finish for our AKs is shellac. It can be clear, amber, or red. Shellac will seal the wood better than an oil finish and is easy to apply and repair. It will seal in cosmoline, but in extreme cases (like dumping a few mags in a row -- you get the idea) the cosmo can boil out through the shellac finish and actually damage it.
Shellac is easy to apply from a spray can (clear) or you can mix up your own to your favorite color and wipe it on or thin it with denatured alcohol and spray it with a sprayer unit from Lowe's or wherever. If it's too shiny for you, burnish the shellac with the same oil and steel wool method described above.
Good luck!