Churchill refuses the renewed peace offer from the Axis. He is able to hold onto power by calling the British people’s attention to the Napoleonic precedent, how the Nazi Empire represents a nastier reincarnation of Napoleonic domination of Europe and how Britain defeated it in alliance with Russia at the height of its power. He is however unable to crush the appeal of the pro-German, anti-Soviet peace faction, which remains strong and staunchily opposes the British-Russian alliance. Churchill is able to gather a majority in the Parliament and the country to support his continuation of the war and (rather more controversially) the alliance with Russia, but the days when he got the near-unanimous support of the whole country are over.
He engineers the combined Anglo-Soviet invasion of Iran to open up a reliable way of sending British adi to the USSR. However, the amounftof aid he can send this way is sadly quite limited: the US Congress has banned American aid to the Soviets, and although Churchill is able to divert a limited part of Land-Lease supplies meant for Britain to Stalin, this is limited by dire British need for such aid and fraught to risk political backlash backlash from American and British who oppose his pro-Soviet policy. Iran is quickly invaded and overrun and its territory is divided between the Soviet zone of occupation in the North and the British in the South. Although the operation is a complete success, it increases the opposition in America to British cooperation with the USSR, despite Roosevelt’s efforts.
Negotiations between Soviets and Japanese about a non-aggression pact and commercial treaty drag out without getting nowhere. Since the reopening of the trade between DEI and Japan, the Japanese industry is already getting most of what they need, and the Japanese government has got less interested in getting Soviet trade. The IJA has got the upper hand in its fight with IJN and the government and high command have picked the Strike North option and are bidding time to shift a sizable part of the IJA from China to Manchuria (even if the calls of the moderates for a compromise peace with Chiang fall on deaf ears for now, the overconfident Japanese militarists are confident they can tackle both teathers at once). Stalin himself has been bidding time as well, but once he got reports from his spies that the Japanese are preparing to attack, he orders a pre-emptive attack on Japan.
The heavily equipped Red Army forces take the lighty armored Japanese army, gearing up for their own attack, by surprise, they make deep inroads into Manchuria, the Soviet Far East offensive appears to be one of the biggest Russian successes of the war so far, even if it is keeping precious resources from the more important European theater.
In the Eastern front, the Soviets have made significant territorial gains in southern Finland, but the determined Finnish-Swedish resistance are stonewalling a Soviet strategic breakthrough, and the Germans and French are starting to redeploy to butter up their defense. In the Baltics and Poland, the Soviets are finding themselves more and more pushed back beyond their pre-war lines, as Axis forces (mainly Germans and French in these theaters) enflank and envelop them. In the Southern theater, the Soviets have managed to overrun Moldavia and most of Wallachia, including the precious Ploesti oilfields and Bucharest. The Romanian army is forced to retreat on the Carpathians, but German-Italian-Hungarian troops are redeploying in greater and greater numbers from Serbia and Greece and buffer up successful resistance. Hitler panics about the loss of the oilfields and orders a crash expansion of the synthetic fuel program and a reconquest of Romania at all costs. He is also enraged about British stubborn refusal of his peace offers and orders plans to be drafted in order to hit British power somehow. Several options are reviewed but due to current main deployment of Axis forces against Russia and the fuel concerns, the option that gets most approval is an aeronaval attack against Gibraltar and Malta. Franco still refuses to join the war against Britain, unless other Axis countries fulfill his exorbitant supplies requests, so plans for Gibralter have to be postponed. Plans for a combined Italo-German attack on Malta go in full gear, however. Petain so far declines to join the war against Britain, too, but guarantees Hitler and Mussolini that if the UK makes any other act of hostility against France like Mers-El-Kabir, he will declare war.
In America, the position of Roosevelt remains stable but difficult, he keeps a strong personal popularity but some of his most radical pro-Allies policies meet overwhelming opposition. While sympathy for Britain remains strong, and Land-lease to Britain goes with limited opposition, the vast majority of the US public remains fiercely committed to isolationism and hostile to his interventionist and pro-Soviet stance. Most Americans think the USSR is just a bad or worse threat than the fascist powers and support the efforts of the Congress to keep America safe from involvement in European conflicts and to ban trade and aid for the Soviet Union. The Axis finds very real lovers apart from the fringe of fascist sympathizers, especially due to its racist policies, but many find that the argument of “fighting to protect Europe from Bolshevism” has some merit. Roosevelt’s efforts to engineer a casus belli with Nazi Germany by using Presidential powers to order an undeclared naval war alongside Britain in the Atlantic consistently fail since Hitler has sent strict orders to avoid any provocations by the USN and the American public, mindful of how such a issue already led them to war in WWI, remains skeptical about the issue of German attacks on British trade.