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Reversal of fortunes

The Romanian Army's inferior arms, insufficient armour and lack of training had been major concerns for the German commanders since before the start of the operation. One of the earliest major obstacles Antonescu encountered on the Eastern Front was the resistance of Odessa, a Soviet port on the Black Sea. Refusing any German assistance, he ordered the Romanian Army to maintain a two-month siege on heavily fortified and well-defended positions. The ill-equipped 4th Army suffered losses of some 100,000 men. Antonescu's popularity again rose in October, when the fall of Odessa was celebrated triumphantly with a parade through Bucharest's Arcul de Triumf, and when many Romanians reportedly believed the war was as good as won. In Odessa itself, the aftermath included a large-scale massacre of the Jewish population, ordered by the Marshal as retaliation for a bombing which killed a number of Romanian officers and soldiers (General Ioan Glogojeanu among them). The city subsequently became the administrative capital of Transnistria. According to one account, the Romanian administration planned to change Odessa's name to Antonescu. Antonescu's planned that once the war against the Soviet Union was won to invade Hungary to take back Transylvania and Bulgaria to take back the Dobruja with Antonescu being especially keen on the former. Antonescu planned on attacking Hungary to recover Transylvania at the first opportunity and regarded Romanian involvement on the Eastern Front in part as a way of proving to Hitler that Romania was a better German ally than Hungary, and thus deserving of German support when the planned Romanian-Hungarian war began. The Conducător had also created an intra-Axis alliance against Hungary along with Croatia and Slovakia.

As the Soviet Union recovered from the initial shock and slowed down the Axis offensive at the Battle of Moscow (October 1941 – January 1942), Romania was asked by its allies to contribute a larger number of troops. A decisive factor in Antonescu's compliance with the request appears to have been a special visit to Bucharest by Wehrmacht chief of staff Wilhelm Keitel, who introduced the Conducător to Hitler's plan for attacking the Caucasus (see Battle of the Caucasus). The Romanian force engaged in the war reportedly exceeded German demands. It came to around 500,000 troops and thirty actively involved divisions. As a sign of his satisfaction, Hitler presented his Romanian counterpart with a luxury car. On 7 December 1941, after reflecting on the possibility for Romania, Hungary and Finland to change their stance, the British government responded to repeated Soviet requests and declared war on all three countries. Following Japan 's attack on Pearl Harbor and in compliance with its Axis commitment, Romania declared war on the United States within five days. These developments contrasted with Antonescu's own statement of 7 December: "I am an ally of the Reich against, I am neutral in the conflict between Great Britain and Germany. I am for America against the Japanese."

A crucial change in the war came with the Battle of Stalingrad in June 1942 – February 1943, a major defeat for the Axis. Romania's armies alone lost some 150,000 men (either dead, wounded or captured) and more than half of the country's divisions were wiped out. The loss of two entire Romanian armies who all either killed or captured by the Soviets produced a major crisis in German-Romanian relations in the winter of 1943 with many people in the Romanian government for the first time questioning the wisdom of fighting on the side of the Axis. Outside of the elites, by 1943 the continuing heavy losses on the Eastern Front, anger at the contempt which the Wehrmacht treated their Romanian allies and declining living standards within Romania made the war unpopular with the Romanian people, and consequently the Conducător himself. The American historian Gerhard Weinberg wrote that: "The string of broken German promises of equipment and support, the disregard of warnings about Soviet offensive preparations, the unfriendly treatment of retreating Romanian units by German officers and soldiers and the general German tendency to blame their own miscalculations and disasters on their allies all combined to produce a real crisis in German-Romanian relations." For part of that interval, the Marshal had withdrawn from public life, owing to an unknown affliction, which is variously rumoured to have been a mental breakdown, a foodborne illness or a symptom of the syphilis he had contracted earlier in life. He is known to have been suffering from digestive problems, treating himself with food prepared by Marlene von Exner, an Austrian -born dietitian who moved into Hitler's service after 1943.

Upon his return, Antonescu blamed the Romanian losses on German overseer Arthur Hauffe, whom Hitler agreed to replace. In parallel with the military losses, Romania was confronted with large-scale economic problems. Romania's oil was the Reich' s only source of natural oil after the invasion of the Soviet Union in June 1941 to August 1944 (Germany also had synthetic oil plants operating from 1942 onwards), and as such for economic reasons, Romania was always treated as a major ally by Hitler. While Germany monopolized Romania's exports, it defaulted on most of its payments. Like all countries whose exports to Germany, particularly in oil, exceeded imports from that country, Romania's economy suffered from Nazi control of the exchange rate (see Economy of Nazi Germany). On the German side, those directly involved in harnessing Romania's economic output for German goals were economic planners Hermann Göring and Walther Funk, together with Hermann Neubacher, the Special Representative for Economic Problems. A recurring problem for Antonescu was attempting to obtain payments for all of the oil he shipped to Germany while resisting German demands for increased oil production. The situation was further aggravated in 1942, as USAAF and RAF were able to bomb the oil fields in Prahova County (see Bombing of Romania in World War II, Operation Tidal Wave). Official sources from the following period amalgamate military and civilian losses of all kinds, which produces a total of 554,000 victims of the war. To improve the Romanian army's effectiveness, the Mareșal tank destroyer was developed starting in late 1942. Marshal Antonescu, after whom the vehicle was named, was involved in the project himself. The vehicle later influenced the development of the German Hetzer.

In this context, the Romanian leader acknowledged that Germany was losing the war, and he therefore authorized his Deputy Premier and new Foreign Minister Mihai Antonescu to set up contacts with the Allies. In early 1943, Antonescu authorized his diplomats to contact British and American diplomats in Portugal and Switzerland to see if were possible for Romania to sign an armistice with the Western powers. The Romanian diplomats were informed that no armistice was possible until an armistice was signed with the Soviet Union, a condition Antonescu rejected. In parallel, he allowed the PNȚ and the PNL to engage in parallel talks with the Allies at various locations in neutral countries. The discussions were strained by the Western Allies ' call for an unconditional surrender, over which the Romanian envoys bargained with Allied diplomats in Sweden and Egypt (among them the Soviet representatives Nikolai Novikov and Alexandra Kollontai). Antonescu was also alarmed by the possibility of war being carried on Romanian territory, as had happened in Italy after Operation Avalanche. The events also prompted hostile negotiations aimed at toppling Antonescu, and involving the two political parties, the young monarch, diplomats and soldiers. A major clash between Michael and Antonescu took place during the first days of 1943, when the 21-year-old monarch used his New Year's address on national radio to part with the Axis war effort.