It sounds like the winterizing bypass. As the water enters the tank (lower connection) a diverter valve can be set to stop water entering the tank and instead connects to the hot line coming out the upper part of the tank. If you've removed this valve, your water won't flow through the tank. Also, many water heaters have check valves (one way) to prevent water from flowing through tank when winterizing. They are famous for failing due to sediments/deposits that build up and block operation. Remove the check valves, soak in vinegar, and see if they operate properly.
Bob & Donna
'98 Gulf Stream Sun Voyager DP being pushed by a '00 Beetle TDI