Various US officials floated the idea of an invasion of the Azores in 1940 and 1941 as part of the extension of the neutrality patrols. But the importance of the Iceland and Greenland occupations by British and Americans overshadowed these plans. Those two occupations were of more immediate importance, but also demonstrate why the Azores were not occupied in this particular period of the war. The governments of both Iceland and Greenland had more or less resigned to Allied occupation and their nominal sovereign, the Danish King, was in no position to oppose the occupations with Denmark herself being under occupation. In contrast, Portugal was still a sovereign, unoccupied power and Salazar saw occupation of the Azores as a violation of natural sovereignty. Had Salazar joined Germany or Portugal came under either German or Spanish occupation, then the plans for the Azores would have transitioned from contingency to reality.

Salazar recognized that Portugal had little actual room for maneuver and adjusted his diplomacy accordingly. In contrast to Franco, whose policies had a pronounced pro-German tilt even after it was clear the tide had turned against Germany, Salazar was more realistic about the Axis's chances in the war. His main priority during the war was to both insure the survival of his government and to have Portuguese colonial possessions secured. Germany could not help him with either. Evidence of how Germany treated its allies as vassals was already apparent as early as 1941 and Anglo-American naval superiority meant that if Portugal joined the Axis, it would for sure lose its colonial possessions. Portugal and the Allies approached each other with a degree of pragmatism that led to Portuguese neutrality having a very pronounced pro-Allied tilt.

This pro-Allied foreign policy was not necessarily a given. Salazar's authoritarian policies and anticommunism aligned him much more with Hitler, Mussolini, and Franco. Portugal had taken a very pro-Nationalist stance during the Spanish Civil War and signed a non-aggression treaty with Spain in 1939. Like Franco, Salazar likely anticipated a German victory after the fall of France and he heavily critiqued the British official alliance with the USSR. Finally, there were tensions over the unilateral occupation of Timor by ABDA forces in 17 December 1941 which added a further complication to the relationship and a near severance of Portuguese and British relations.

But despite Salazar's ideological compatibility with fascism, most elite Portuguese opinion remained fairly pro-British. Additionally, although Salazar signed a non-aggression pact with Franco, he did not trust Spanish intentions if he joined in a common Iberian crusade with Spain's German ally. A German alliance pretty much offered nothing that Portugal could conceivably want, so there was little temptation to tack to a fundamentally new course in Portuguese foreign policy.

Salazar instead opted for what Portuguese historians have called "geometric neutrality" between 1940 and 1942. Portugal sought to appease German demands for access to Portuguese markets, and Portugal acceded in such a manner that it did not alter its relationship with Britain. Like Spain, the Germans tended to be more interested in strategic minerals and using Portugal as a means to evade the Allied blockade. Although some German military planners conceived of Portugal playing an adjunct role in Operation Felix, the abortive plan to attack Gibraltar with Spain, these plans foundered on operational realities of an overstretched German war machine. Thus Portugal found supplying German demands for tungsten along with a trickle of oil and colonial products easy to accommodate in its geometric diplomacy.

Britain, and later the US, took umbrage over this supply route, but their diplomatic efforts to stop the flow of supplies to Germany mirrored that of similar efforts conducted in Spain. Allied money and British-owned mines bought up some half the output of Portugal's tungsten. But the Portuguese-Allied relationship was more constructive than the Spanish one. The Allies were able to buy these materials through financing while the Germans had to pay with either hard currency or finished goods. Even during the geometric period, the Allies possessed a much stronger diplomatic hand. Allied naval superiority guaranteed the viability of Portuguese overseas colonies, save those in East Asia, giving the Allies an important leverage in negotiations with Salazar. By 1943, it was clear that the Allies were going to win and Salazar in turn adjusted to a more pro-Allied policy.

The eventual Allied occupation of the Azores in 1943, unlike that of Portuguese Timor in 1941, was done with the full cooperation between the two parties. Unlike Franco, Salazar recognized that the writing was on the wall for Hitler after Stalingrad and his public pronouncements after 1943 tended to be explicitly pro-Allied, even if Portugal was not a belligerent.

This pragmatic approach on the part of Salazar allowed Portugal to transition into the postwar period with greater ease than Spain, which had to rely upon the right political constellation to absolve Franco of his wartime sins. Despite Portugal's illiberal politics, it became one of the founding members of NATO and received Marshall Plan aid. Salazar also gained a certain degree of respectability in the West in spite of his dictatorship because of his pronounced tilt towards the Allies during the war. This was a strong contrast to his neighbor Franco, whose fascist connections still dogged him throughout the rest of his rule.

Sources

Paiva Abreu, Marcelo. "A ‘blank cheque'? Portuguese Second World War sterling balances, 1940–73." The Economic History Review 67, no. 2 (2014): 535-555.

Wylie, Neville. European Neutrals and Non-Belligerents During the Second World War. New York: Cambridge University Press, 2002.