Here's how it can work out in practie:
The player can simply max out reputation to the point where debuff won't matter.
If debuff is uncapped, then all factions will inevitably commit suicide by player and the player will inevitably kill everybody. A death spiral, and a fairly boring one.
The issue here is that X4 is not a turn based game. In turn based games, AI has a chance against humans, because human is controlling a restricted pawn which is very limited in what it can do. But in x4 the player pilots ships directly and it is the best pilot in the galaxy. The player is superior to the NPCs, is capable of ending the world with one powerful ship, and this is not something that can be addressed with debuffs. As such it is reasonable to expect that all attempts to make field level between player and NPCs will fail, and the player will always win.
With that in mind it can be reasonable to focus on sandbox experience instead of trying to replicate total war. Make a reactive world, and let the player wreck it. Which is where diplomacy update is going, in my opinion.