Capturing the Caucasus oil fields was to be the primary goal of German military operations. Eventually the plan, which came to be known as Operation Blue, called for splitting Army Group South into Army Group A (which would advance southeastward into the Caucasus with the ultimate objective of Baku) and Army Group B (which would provide flank protection by advancing eastward towards the Volga River). Rumanian, Hungarian and Italian armies were to be inserted into the lengthening left flank of Army Group B as it advanced. The capture of Stalingrad was not even mentioned in the planning of the offensive but it would become an objective of Army Group B on July 13th. Conquering the Caucasus would deny the oil found there to the Soviets and seal off the Allied supply of lend-lease goods coming from Iran, so there was a sound strategic logic to this campaign. In the process, Moscow would be outflanked from the south.
Soviet perceptions of German intentions for the summer of 1942 were utterly wrong. Stalin expected a renewed offensive towards Moscow and concentrated most of the available reserves against Army Group Center. This distribution was retained even after the German's summer campaign got underway, on the false assumption that the attacks in the south were a diversion and that the main offensive would eventually fall on the Moscow axis. However, this incongruous force distribution did have a positive effect in so far as the German commanders in the south became convinced that the Soviet Union no longer had sufficient strength to resist their advances. The failure of Soviet forces to respond to the German offensive encouraged a negligent attitude towards the threat to the expanding flanks of Army Group B, which would become critical to the outcome of the campaign.
The main German summer offensive began on June 28th. Army Group South was reorganized early in July into Army Group A and Army Group B. For the most part, the German forces made good progress towards their objectives. By July 8th the 1st Panzer Army, part of Army Group A, had crossed the Donets River. Rostov on the Don, the "gateway to the Caucasus" fell by July 25th. At the end of July the army group was about 100 km from the Caspian Sea - a three or four days march. The pace of the German advance during the early days of Operation Blue in 1942 was reminiscent of that achieved in the early months of Operation Barbarossa in 1941.
While Soviet defeats thus far had been continuous, they were not as devastating as those in the previous summer. The determined resistance combined with a more flexible defensive posture -- which allowed for retreating from untenable positions -- had paid off by avoiding the devastating encirclements of the summer of 1941. Even so, morale was generally low because of the constant defeats. Try as they might, the Red Army seemed unable to stop the German Army as it drove ever deeper into historically Russian territory.
From the German point of view, the pace of operations was not great enough. Hitler, anxious to break into the Caucasus quickly, ordered the transfer of 4th Panzer Army to Army Group A on July 17th. As a result, 4th Panzer Army was not utilized by either army group for a critical two weeks at the end of July. Army Group B's slow advance during this period was directly attributable to its loss of the panzer army while Army Group A did not gain any further advances because of its temporary availability. On July 29th 4th Panzer Army was returned to Army Group B. This has been widely regarded as an important error during this critical period of the offensive.
The Soviet leadership was clearly panicked by the German successes in July. Stalin issued the now famous Order No. 227 on July 28th. Also known as the "Not one step back!" order, it called for draconian disciplinary measures to prevent further retreats. Although this order was by western standards incredible, it did have a positive effect on the morale of the officers and men of the Red Army. There was a pervasive sense that if the Germans were not stopped now, they would never be stopped.
German advances continued, however, throughout August. In the Caucasus, the Maikop oil fields were captured on August 8th and by the 18th the Germans were fighting at the passes through the Caucasus Mountains. Troops from Army Group A climbed Mount Elbrus in the Caucasus on August 23rd. By the end of the month, the 1st Panzer Army had crossed the Terek River and was threatening Grozny.
In the area of Army Group B, the Luftwaffe began bombing Stalingrad in mid-August and this produced an enormous amount of damage to the city's buildings and infrastructure - something that would later hinder the advance of German army units into the city. On August 23rd, Army Group B had reached the Volga River and, by the end of August, the German 6th Army was fighting on the outskirts of Stalingrad on the Volga.
For the Soviet forces, the retreats of August reinforced the sense of desperation resulting from the defeats of July. However, along the Volga and in the Caucasus Mountains, they found a new line to defend. Combined with Stalin's order to not retreat, this galvanized the Red Army's determination to make what was, for all intents, a last stand at Stalingrad.
