I'm super unfamiliar with limitations surrounding AI mechanics, so I'll just be commenting on the game design itself, assuming the AI works flawlessly.
I REALLY like your game idea. I'm a huge fan of TTRPGs, and this gives off the exact vibe I've been wanting from a TTRPG turned video game for ages now. I think you've given quite a lot of thought to the narrative and setting elements and have a lot of really good content to work with. That being said, I'm imagining this game from the position of someone with no AI experience. I think you could do a good job using only scripted events and variations of them, and even then, I think this would fall into its own social-strategy roleplaying game genre. some more detail would be needed in your GDD before usage, like menus. While you told the concept of the different actions, how they will actually function is also critical information to have. Very good idea overall.