Terrified of the might of Mussolini's Supermarina, the Allied Home Fleet deployed only in the Atlantic, with special emphasis on the North and Barents Seas (to establish a blockade) and the South Atlantic (to blockade South American ports suspected of being friendly to the Axis). Only three WWI battleships could be spared to patrol the icy waters of the North Atlantic. Axis High Command responded by sending the entire Kriegsmarine and Unterseewaffe to the North Atlantic while the entire Italian fleet shelled Malta and Gibralter (with little effect).
Allied aircraft raided Norwegian fjords in search of the Admiral Sheer who'd been held back from the main fleet with minor engine trouble. However, dense fog prevented any success.
Meanwhile, the old WWI battleships were able to sink a U-Boat when the Royal Oak rammed one that had surfaced to get a better shot. Unfortunately, she suffered substantial damage herself when armed torpedoes aboard the U-Boat exploded, taking out all but one gun turret and flooding all but a single partition.
When the Scharnhorst and Gneisenau arrived with the Gerry fleet, the Royal Oak was quickly finished off. The Revenge and Royal Sovereign were able to escape after a brief skirmish (though the Sovereign took significant  damage). The German fleet was undamaged though the cruisers Blucher and Admiral Hipper were forced to break off action and return to Norway. The remaining four ships were rumored to have met up with a German oiler and could be anywhere!
To provide cover for returning ships, the Luftwaffe launched a series of raids on the Barents fleet. Ace pilots inflicted 3 damage on the Renown, 2 damage on the Repulse, and 1 damage to the Ark Royal and were personally decorated by Der Fuhrer.
PoC: Axis 5 - Allied 3 = Axis +2
Axis lead by a total of 2.
Regrouping after the devastating air raids, the Home Fleet elected to develop new anti-aircraft methods while patrolling only the North Sea, North Atlantic, and South Atlantic in what would prove a futile effort to find the German battle group that disappeared after successfully engaging the Allies the turn before. All damage to the Renown, Repulse, and Ark Royal was repaired while new AA guns were installed and crews trained.
The Luftwaffe was unable to locate any Allied ships. The RAF raided Italian patrols in the Mediterranean, but was unable to inflict any significant damage. The Italians stepped up their shelling of Gibralter.
The Kriegsmarine patrolled the Barents and Baltic with impunity and flaunted its strength before the world. Even the salt had been polished off of their ships!
PoC: Axis 5 - Allied 3 = Axis +2
Axis lead by a total of 4.
With Stalin's promise of assistance, the British Home Fleet again resumed patrols of every Atlantic Area. Four cruisers and the Eagle were assigned to patrol the South Atlantic to guard against Italian incursions. Four heavy battleships and the Glorious were assigned to the North Atlantic in anticipation of a quick hit and run strike at German forces expected to be found there. Heavy patrols were assigned to the North Sea and Barents Sea.
However, Ribbintrop managed to sign another secret pact with the Soviets declaring the Baltic a neutral sea (i.e., Russians were not available and the German fleet didn't patrol the Baltic either). Furthermore, Stalin agreed to temporarily impound British ships in Archangel (i.e., both the King George V and Prince of Wales failed their speed rolls).
With the temporary aid of Stalin, Hitler assumed direct control of the naval operations (over the objections of the High Command which had been planning another North Atlantic foray) and ordered the entire fleet to the Barents Sea. Admiral Doenitz managed to wield enough influence to redirect the U-Boats to the South Atlantic, however.
Allied aircraft struck first, forcing the Bismark, Scharnhorst, and Gneisenau to return to port with incidental damage before fleet action could begin. The Luftwaffe stuck next, forcing the Repulse to seek refuge in Archangel (where she, too, was impounded).
Then the Allied fleet struck. The Admiral Hipper, Blucher, and Prinz Eugen were all sunk in the opening volley while the mighty Tirpitz took 5 damage and the Graf Spee was forced to return to base with damage to the steering. However, in the same volley, the Hood together with an escorting cruiser were sunk and another cruiser damaged.
As the fleets clashed again, the Tirpitz took 3 more damage while the Lutzow took 1 damage and the Admiral Sheer was forced to abandon the fight. Simultaneously, another British cruiser was lost.
In the third engagement, the heavily damage Tirpitz was finally forced to break off. However, the Allies suffered the loss of the flagship Renown and the previously damaged cruiser.
The sole remaining British cruiser was lost in subsequent one-on-one action with the damaged Lutzow. Both Allied carriers were able to escape to Archangel, where they, too, were impounded.
Meanwhile, the continuous shelling of Gibralter enabled 4 Italian cruisers to slip by and escape into the South Atlantic. However, the Andria Doria was sunk during the bombardment by an RAF who vowed to put an end to Italian agression. Joined by a wolfpack of 4 U-Boats, the Italian cruisers in the South Atlantic engaged the Allied force. Two U-Boats were disabled by depth charges; however, ace captains sunk the Eagle before she could launch her Swordfish. In the ensuing cruiser action, two Allied cruisers were sunk while two others took refuge in Brazilian ports. No Italian losses were recorded as all 4 sailed into French ports.
PoC: Axis 7 - Allied 2 = Axis +5
Axis lead by a total of 9.
The Americans joined the Allied war effort by sending the Augusta and Wichita (as part of the 50 destroyer deal) to patrol the North Atlantic as escorts to the first convoy (delayed by FDR when he saw previous escorts were inadequate). The Russians refused to enter the war despite much Allied diplomacy; they, however, release the impounded ships and agree to allow Allied ships to base in Archangel.
However, no sooner than the Allies had taken up station in the Barents Sea than Russian treachery struck again; both battleships sent to reinforce the fleet (the Malaya and Anson) were impounded in Archangel when they docked to refuel (failed speed rolls).
Meanwhile, the British Admiralty sent large forces to patrol the North Sea and to guard the convoy in the North Atlantic. The South Atlantic was limited to the two cruisers based in South America.
A wolfpack ring around those bases in South America prevented them from returning to fight the Italian cruiser armada, sinking one and disabling the other as they attempted to leave port. Despite ASW, no U-boat losses were reported.
The German High Command, learning of continued Russian treachery, sent all available ships (the Tirpitz repaired 8 damage) to the Barents Sea. The Baltic was kept neutral again as a sign of good faith toward Stalin.
Allied swordfish crippled the Graf Spee (2 damage) while the Luftwaffe was unable to affect Allied forces. Strikes from the Graf Zeppelin were held back in hopes of catching British carriers with heavier surface power. The Prince of Wales struck first, sinking the Scharnhorst and then, in return, being sunk. The Gneisenau was disabled. Joining first round casualties were the King George V and Ark Royal (targeted by the Bismark).
Having lost the vast majority of their forces in the first volley (and to Russian skullduggery), the Allies retreated. The Repulse was lost covering the retreat of the Formidable (disabled).
The Italian Supermarina continued shelling Gibralter to demonstrate that they could while Mussolini's flag was evident in the South Atlantic.
PoC: Axis 7 - Allied 2 = Axis +5
Axis lead by a total of 10 (Maximum).
The United States bolstered Allied forces by committing the heavy battlship, Washington, to the North Atlantic patrol areas. And, in an abrupt turnabout, Stalin declared war on Germany and sent the Okt. Reolutia to patrol the Baltic Sea and released all Allied ships at Archangel.
Heavy forces were assigned to escort convoys in the North Atlantic and Barents Sea while significant forces were commited to both the North Sea and South Atlantic. Stalin ensured adequate protection for the convoy (which he badly wanted delivered) by sending oiling ships to refuel the Valiant and Howe (i.e., they both passed speed rolls).
The German High Command, furious at Stalin's treachery, sent all heavy ships and the Graf Zeppelin to deal with the Baltic threat. The pocket battlships (225s) were repaired and polished up in their hidden Norweigen bases where the RAF was unable to find them despite tremendous efforts.
Admiral Doenitz commited the entire wolfpack to the North Sea to break the blockade strangling Germany.
Meanwhile, the entire Italian navy (bolstered by the return of the cruiser armada) shelled Gibralter with impunity.
In the Baltic, the Gneisenau took minor damage (1) before sinking the rogue Russian. In the North Sea, 2 U-Boats were lost and 1 disabled before the U-Boats broke Allied dominance of the area and sank the Illustrious. In the Barents Sea, crack Luftwaffe aces zeroed in on the convoy and sank it with precision (4 damage). They also disabled the Victorious.
PoC: Axis 3 - Allied 3 = No Change
Axis lead by a total of 10 (Maximum)
With the failure to deliver the convoy, the Russians refused to participate in the war while the Americans, surveying the carnage, refused to commit additional forces to the Atlantic theatre.
With demoralized allies, a large German task force ready to go, a huge wolfpack, and a huge Italian navy continuously pounding Gibralter, the British realized that there was no hope for victory and elected to sign a negotiated peace.
The signing took place today at Gibralter on board the newly commissioned Impero and included the surrender of that facility.
Congratulations to John Pack on an impressive Axis victory! Thanks for the very interesting status reports.