Why am I losing rings in Oil Ocean Zone Act 2?

Solution 1:

There are chain switches throughout the level which will temporarily clear the air.

Based on the in-game timer, you will have about 30 seconds to find another chain switch before you start to lose rings again.

The smog cannot kill you directly, as the ring-draining effect will stop if the player hits 0 rings.

Sonic clearing the air with a switch

Interesting side note: The chain-pulling mechanic is a callback to Sandopolis Zone Act 2 from Sonic 3 & Knuckles, which had the same chains acting as temporary light-switches.

Sonic 3 - Sandopolis Zone light switch