How does the shaft and bushing look? If worn there will be excess clearance and cause it to leak. I don't see an oring in the diagram, but seems there would have to be something to hold the oil.
The pulley shouldn't rub the housing. Possibly it has run loose in the past and wallowed the bore. Might could take some off the back of the pulley to give it some clearance. You don't want to leave it loose, it will quickly wear the shaft and pulley bore, don't want it binding against the housing, it will overheat.
Looks like there would be room to machine the front of the housing to accept a seal if you have access to a machine shop.
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