The impression I get, is that on the diplomatic level it's basically the same AI quality as RTW/M2TW (i.e. fairly minimal), but it's now being asked to deal with a more complicated game. Part of that is the way the world is already well-developed across multiple theaters, with colonies scattered about, just ready to start border disputes outside the core faction home. There are fewer neutral buffer zones between major powers like we had in the earlier games. And with all these factions, there are so many overlapping "gotta have it" territories they're trying to occupy, as a hardcoded AI script.
I think the game would have been better if it had a smaller number of major powers, and the smaller factions were dumb pushovers that didn't engage in diplomacy, basically like the un-allied rebel factions that start out as buffers between nations in RTW and M2TW. Giving those minor states the ability to form alliances and protectorate status really complicates the game. But it's also just the sheer number of main factions.
Of course, if they had reduced the game down to just 4 or 5 main factions to streamline the diplomacy and make it easier for the AI to handle, then everyone who didn't get their favorite nation picked would have screamed bloody murder. Remember all those hot-tempered "what factions should be playable?" threads before the final game features were announced? This may be a case where the player community shot itself in the foot, by asking for so many playable factions.
Or, it could just be that the devs wanted to go in that direction anyway, then decided the AI couldn't really handle the complexity, so they'd fall back on random (or at least frequent) DOW's supported by artificial cash infusions to make the game "challenging."
P.S. I wouldn't still play this game occasionally, or post here, if I didn't think the series had so much potential. And to be honest, because there is nothing else out there like this game series.
Bookmarks