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Just to verify this is the intended result.

The Germans took Algiers on their turn.
The Allied turn N. Africa surrenders to Axis.
But in addition all the supply sources except the one city(port) disappear. The one port hex is the only hex that shows supply. All the UK units in N. Africa go to low supply state (half movement) which leaves them in bit of a fix for breaking contact with the German and Italian units.

During the German turn that follows they get to attack the UK units in there low supply state.

The Allied turn that follows shows supply has returned for the UK units in N. Africa.

Picture below is the Allied turn after the Germans take Algiers.

This is one of those systems in the game that done one way creates a problem and done another way creates another problem.

For example if I just say a player has to take every hex to convert it after a surrender then Norway would be impossible. Germany would have to spend months running up the coast.

This is the standard supply rule in WiF.

There is a difference here. This occurs only for one turn. It returned to full supply on the next turn. It is more like the logic is caught in an in-between state as N. Africa disappears as Vichy N. Africa (on Allied side) and conquered N. Africa where both sides have territory under their control. The Axis have everything from Algiers to the East. The Allies still control everything to the West.

The game seems to be caught in the twilight zone between when it was Vichy N. Africa and when it becomes non-existent (surrendered N. Africa). For that one turn (actually Allied half of the turn Algiers is taken and the Axis half of the next turn) N. Africa has no "state" that the game recognizes so all the hexes become enemy to the Allies for its portion which means no supply accept in the port cities the UK has units in. This then leaves the Allie units that were defending Algiers with half movement to try to get away from the Axis units which won't have the problem in their turn. After that Axis turn N. Africa returns to a state that the game recognizes and all UK units return to full supply.

zero supply enemy hexes convert to the enemy over time.

There are 2 things in the game that I can't find a way around it. This is one of them.
The other one is switching from main to port supply and back.

It is a minor problem. Players just need to be aware there is going to be a transition turn and plan for it.
In the case of Algiers the UK player when he sees its going to be captured will need to leave N. Africa troops holding and step back a couple of hexes with his UK units so they won't get caught flat footed in the transition.