I agree that it is very low probability especially considering the Nazi approach to things.
There is also the issue of Italy. If Germany reverts to a sitzkrieg, does Italy enter the war and invade Egypt and Greece and then does Germany enter these conflicts.
Assuming Germany pursues sitzkrieg, it does present the UK with a series of dilemmas. Do they go after the French fleet? Do they attack Italian East Africa if Italy enters the war? Do they try to take Norway? Do they bomb Axis held areas?
I think that one big issue is the impact on public opinion in the UK and US. Does it tilt the balance toward the isolationists in the US?
What about Japan? With the UK less tied down in Europe, are the Japanese more cautious?
Does this situation make Stalin more flexible in negotiations with the German on various Eastern European issues given the realization that they are not expending much effort in the West?
Do the Germans stop making subs?
Lots of butterflies.
Still it may be one of the only barely possible paths to victory or at least stalemate for the Axis.
Assuming it works, it means that the Germans can devote greater resources to the Eastern front. With no active war against the UK, it is possible that the Finns are willing to be more aggressive. It may be possible that Turkey enters the war against the USSR. It is possible that there is no - or a very reduced - Lend Lease.
It is reasonably plausible that the US stays out.
Some of this is already settled.
The Reich held Norway before the Invasion of France, so that is a done thing. Italy doesn't enter the war until about 12.5 seconds before the French capitulate, so that is also a non factor. until that point
The Reich in the scenario I posit bails Italy out only to the ponit of pushing the Greeks back across the Greece/Albania border, Then they make clear that Italy is on their own if the want to attack before the true enemy of Fascism, the USSR, is defeated, Then the Reich will support the Italians in the reestablishment of the the Roman Empire as Mussolini envisioned it. Mussolini might decide to go on his own, if so he gets his ass handed to him again.
The British will almost certainly still attack Mers-le-Kèbir, since that event happens too early for the German ceasefire to have even been properly announced. Any British bombing of civilians areas might be met with Luftwaffe counter strikes on military targets (like Bomber Command bases) but the strategy would be far better served by giving Movietome News crews free access to the bombed civilian areas. Bomber Command raids in 1940 were, overall, quite ineffective and suffered severe losses from Luftwaffe defenses, but they would serve as strong propaganda point with Australian, North American , South African (and possibly British, deepening on the degree of censorship) audiences who saw Movietone newreels when they attended the cinema.
If this strategy worked, there wouldn't be much, if any, Lend-Lease to the USSR, not from the U.S. for sure, very possibly not from the British either. The Soviets would, in a very real sense be all alone. If anything, as the the baked in Anticommunism in American/British/Commonwealth governments came to the fore and watched what was happening there would likely be "a Pox on both your Houses" attitude.
Japan would, simply put, be in one Hell of a fix. They would still have the exact same issues as IOTL, since U.S. actions toward Japan were not dependent on what the Reich was doing. The Japanese decision to invade China, the savage brutality displayed in Nanking and elsewhere, all the way through to the invasion/occupation of French Indochina (i.e. Vietnam) was not done in any sort of cooperation with the Reich (if anything it was the opposite, the Nazis would very much have liked the Japanese to engage the USSR in the Far East, the better to divide Moscow's attention). That means the various trade sanctions and embargoes will still happen. That still leaves the Japanese Army with less than six months of oil reserves and the Navy with less than a year. The Two Oceans Navy act has already been approved and ships are arriving (all four
South Dakota Class were commissioned between March and August of 1942, with
Essex commissioned in December) leaving the Japanese with virtually no time to waste.
If the scenario works as envisioned that means the Americans will be able to throw far more at the Japanese and do so sooner, The British, for their part will have access to many of the ships and men that were engaged/lost in the Med & North Africa.