This is a very good question indeed & is in fact one I was asked by a friend just recently ; I was quite stumped for an answer !

This is very simplistic, but as I understand it Hitler was very confident of Spanish 'co-operation' following the help extended to Franco during the Civil War. Hitler needed to capture Gibraltar and was also a little nervous of Portuguese intervention.

Hitler met with Franco at the famous Hendaye Conference, 23 October 1940 where Franco presented an impossible list of 'terms and conditions'. ( Franco knew that his country, weakened by the recent Civil War, could not afford to become embroiled in another conflict so soon, possibly fatally weakening his own position ).

Following this meeting, Hitler famously remarked that he would 'Rather have three or four teeth removed than go through that again'.

Negotiations became so protracted that the only alternative would have been for the Wehrmacht to fight their way through - and by the time that this was realised, all the Germans' strength was needed for Barbarossa.

So Hitler fatally misjudged the potential of Franco's support. Gibraltar was tremendously important to the British war effort - the Italian Fleet could not venture out of the Med and German surface vessels could not intervene in the Middle East. ( One can perhaps see the need to sink the French battleships at Oran and Dakar in a different light...).

The above is only my own synthesis of various recently-read material - I'd be very interested to hear other views.....

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"Stand by to pull me out of the seat if I get hit" - Guy Gibson