I remember that such seals used to be made of cotton rope or cord, which was covered with graphite. It was flexible enough to seal very well, as the water jacket doesn't have any pressure in it. A thin cotton clothes line could be boiled in water first, then greased or graphited. It will take some trial and error to get the right amount, but it's cheap and it works. Hi temp orange rubber O rings would also work, if you can find the right size.
Frank Hatten would be a good person to ask about what's being used that's a little more modern.