Yep, I'd be surprised if this wasn't the case. This would be the way for guests to "follow the Yellow Brick Road" into the Land of Oz, as envisioned in the announcement.
So: blue is the main entrance, purple the side entrance, and red (you feel as) superfluous and being closed off. It could still be a side-entry, or a "back-way", if you like, into/out of the repurposed Arkham building, leading to the SFC. Even if it is kept open, the general guest flow leads down Main Street anyway, and with appropriate signage and updated park map, the main entrance would still be the most-utilised as intended. However, I'll agree that it's not necessary to keep open, just that it will create a loop and help distribute some foot traffic.
The green circle (if I'm not mistaken) is a BOH storage extension that protrudes into the alley, and I would hope this will be removed to widen the alley.
I think this will happen in the future, but I'd rather they develop the area behind Wild West first to remove the dead-end in a meaningful way. It's been said before, but there's enough room to do a new section of the park back there and still utilise it for FN mazes. If/until that happens, I don't think there's much need to connect the pathway back that way.