Yes, when your sub is sinking then it can be the end of the campaign. Essentially, you must 'Abandon' the sub in shallow waters and you get a chance to be assigned a new sub. Else you see flowers on the sea which means you and your crew have died, or even: you succeed leaving your sub but you get captured by the enemy which will also end the campaign.
As said by Julhelm above you can 'mod' this behavior with the scripted event files if you want.
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