No, it doesn't contain acid or base. Completely neutral product.
We recommend you brush the surface with a wire brush first to remove any flakes (loose rust). Owatrol Oil can be applied to both rusty and sound parts. It will block the corrosion on the rusted parts and form a bonding film on the sound parts. The whole surface will be uniform, stable and ready for finishes.
No, simply remove the loose rust (flakes).
No, there is no chemical reaction. However, it's preferable if rust is present to increase the thickness of the film. On new metal it is preferable to mix 50 % Owatrol Oil + 50 % glycerophtalic paint to form an anti-corrosive primer (except on galvanised and zinc).