Thanks! I'm very glad you're enjoying it and I am indeed trying to take into account the issues brought up by readers and setbacks (which are inevitable in all but the most completely lopsided conflicts) for the Axis.
For the Germans, balancing supporting anti-British insurgencies with the demands of colonialist allies is undoubtedly one of the trickiest diplomatic issues currently. The net result is that, so far, the Abwehr has developed extensive contacts with Arab pro-Axis movements, but has not begun to assist them in an all-out way.
France's main military role is the aerial front with Britain, which both helps to tie down as much of the RAF as possible in England itself and frees more of the Luftwaffe for either rest and refit in Germany or transfer to the Mediterranean. The French also assist in the Med, primarily in a logistical capacity.
Gibraltar is still under siege, but will not remain so for much longer.
The British probably will become a little more nervous about the home islands' safety, but not much at the moment. The Germans fall far short of the number of landing craft and support vessels necessary for a cross-Channel landing to be logistically viable, and the RN's superiority over the KM is such that it would still be able to force its way into the Channel even in the event of Axis air superiority. What will start to make them somewhat more worried (which gets back to Linense's question) is the possibility that once Gibraltar is under Spanish control, the Italian and some part of the French navy which was not sunk by the British air raid would be able to move into the Atlantic along the coast to northern French ports. All that said, given how stretched Britain is at the moment, the stationing of even a few more assets could be significant.
The fall of Egypt would be a major boon to the Far Eastern Axis. Instability throughout the British Empire would immediately rise, and London would start stripping every force it thought it could spare from other theaters to protect its oil source.
Very much appreciated.
The British response was mainly in the form of strengthening the air defense system, such as stationing more fighters and increasing the amount of radar, as well as constructing more fortifications and an increased naval presence.
The thing to keep in mind is this - the Wallies, in both OTL 1940 and in TTL 1941, never seriously considered the possibility that France would fall so rapidly. They were expecting a repeat of the Western Front from WW1, albeit with new tactics and updated technology. If it had held as it did in 1914, the Mediterranean defenses at Malta and elsewhere would have been more than adequate, but as it collapsed, the assets the Axis was free to bring to bear, in combination with the necessity of maintaining the defenses of the British Isles, were overwhelming.
A sortie by the RN in defense of Malta would not have ended well. By that time, the Axis had acquired complete air superiority and the British ships would have been brought under sustained and unrelenting torpedo and dive bomber attack. Granted that the Italian pilots, of even the improved Italy of TTL, are not as skilled as those of the IJN, and the German pilots at best average in anti-shipping operations, the RN force would probably not be completely sunk from the air as Force Z was, but a large part of it would and the rest would be heavily damaged. It would then have been engaged by the completely undamaged Italian fleet and destroyed. The invasion itself would then have proceeded a short while later after whatever minor repairs to the Italian ships were necessary had been conducted.
The very real supply problems which you point out were one factor why TTL's First Battle of El Alamein was an Axis defeat. The Axis will undoubtedly begin to mitigate those problems with the suggested initiatives, which the rail network which was constructed in Libya in TTL will assist.
Good points as well. The British are clearly under considerable strain.
I know I should cover the U-boat war more. The Battle of the Atlantic will be the subject of either the next update or the one afterwards.
The French are harassing the Wallies in their colonies. It's not a major drain, but more than a minor annoyance.
Japan is consolidating its position in Indochina and observing developments closely.
I don't see the Luftwaffe attempting a strategic bombing campaign against the British deep rear in Egypt. Even with Wever, the LW is still heavily focused on ground support, a focus reinforced given the result of the last battle. The discussion has however given me some ideas...
Regarding aircraft, I would say both sides have around 1,500 each. The Axis composition is approximately 1,000 German and 500 Italian. The German planes are a mixture of Me 109, Fw 190, and Fw 187 fighters and He 118 and Ju 88 bombers. The Italian and British aircraft are the same as in OTL, and both sides have drop tanks. The main aspects about the German planes to note are that the proportion of the Fw 190 relative to the Me 109 is being increased, and the Fw 187 has proven very capable in the ground attack role and is increasingly used in that capacity.