This game is as good as over. Nicholas only needs 1 point to win. And since he is first, he can pick the Imperial Strategy Card. When he plays the Imperial Card it would give him the winning point. As a practical matter the game is decided, however it might be possible through the use of an Action Card for Steve to pre-empt this action. Only Steve would know for certain.
Nicholas chooses the Imperial Strategy Card.
Steve picks the Political Strategy Card, hoping he will get some Action Cards that might help him stop Nicholas. He converts the 2 Bonus Tokens into Command Counters and puts them in his Command Pool.
The only real reason Nicholas selects the Diplomacy Strategy Card is to assure he gets to take the first turn in the Action Phase.
Steve selects Warfare.
Both players agree there's little point in continuing. Nicholas gets to go first. If Steve could have stopped him that opportunity has passed. Nicholas already has the Imperial Strategy Card. He's assured 1 more Victory Point. He already has 9 and 1 more will secure the win.
Nicholas has won the game.