TF makes API calls to the underlying cloud. If those hang, you'll have to wait for them to time out.

Whether TF can update the state & release its locks would depend on where those were hosted. If they're in the downed AZ, then ofc. it can't do that, and manual intervention will be required afterwards. I forget if you can make those objects regional when stored in AWS or not. (You can in some other storages.)

… what would you expect to happen here?

Nothing is perfect, there’s probably good reason for this behaviour … but it is rarely something that happens anyway. and you know, deleting a key for the state lock (one that explicitly tells you when and who created it) ain’t that hard or a that big of a deal.

I think any system is susceptible to problems like this if the underlying hardware becomes unavailable. Using dynambodb to obtain locks on s3 is a pretty common pattern in AWS development. This has more to do with AWS than Terraform.