I've had the connector at the sending unit cause the exact problems you described. At one time I just stripped the wire, wadded it up inside the connector cap and got by until it happened again. After realizing that was solvable with a soldering iron the problem ceased.

It's certain that if your oil pressure was going to zero your engine wouldn't run much longer. Perhaps it might be a grounding issue at the gauge, if so, the original sending unit might still be a good backup.

Have an old 123 diesel you can scavenge for parts? They used a mechanical gauge that was fed oil pressure from the engine, you could use the hole where the oil pressure sensor is installed to hook up the pressure line to go to the mechanical gauge, and then see if you have a problem with oil pressure.

It just dawn on me that this problem cannot be a blockage in the oil cooler or lines. The oil flow is blocked by the oil thermostat in the filter housing during startup by default. The car shows good oil pressure at start up so I have eliminate the oil cooler or lines.

The sender is again tested. I use compress air to vary the pressure and measure the resistance. It is about 60ohm at atmosphere and the resistance increases as I crank up the pressure. The resistance value measured is very stable and doesn't fluctuate.

Unfortunately it sounds like your oil pump has failed. Not sure if the engine has suffered bearing damage or not. You may want to send in a used oil sample for analysis to see how much metal is in the oil.

The answer is in...
 

I opened the side door on the oil pan and put my hand in. Found a metal piece and ball bearings. The vacuum pump had failed sometimes in the past and 8 ball bearings had dropped into the sump. I don't know when it happened, definitely not recently. I changed out old style VP when I bought the car. The old VP looked intact so it must have happened before my ownership. VP was replaced. However, the repairer never fished out the ball bearings and it somehow damaged the oil pump. The housing of the oil pump was punched through, strange enough, from the inside as the ball bearing was sucked into the pump. The sieve on the pump intake was worn over time by the bearings.

Anyway, the root cause is found. The hole on the oil pump housing explains why the oil pressure drops sometimes to 0, or close to 0 and then creeps up again. I think the rod bearing is OK as I have been driving the car for a while like this assuming it was the sender or the gauge. I will check the rod bearing to be sure. Check out the picture, hole on the right with the metal piece.

Thanks for sharing the root cause.

OK, so can you source a good oil pump? I think a used pump would be a safe bet, depending on the amount of labor involved in R&R process, but check to see what a new pump would cost, sometimes the prices of things can be absurdly high or pleasantly not too bad. If you can get a good pump installed and still have 1.0 BAR pressure when the engine is at idle when hot, then I'll bet your bearings are good. Probably worth pulling off the valve cover and taking a look at the camshaft followers to see if they are wearing down.

I have replaced the oil pump. I have a spare one. It is a royal pain to swap it out. The engine is ok as I have been driving the car for awhile with the problem. There is always oil only the pressure is low sometimes when it escaped through the hole. The problem is the "new" turbo is ruined, I believe.