If there were strength or victory level requirements for the different options that would make the strategic map more dynamic.  For example, if there were levels of victory like many older games had, like "Minor Victory", "Major Victory", and "Decisive Victory" then you might only be allowed to occupy on a minor victory, destroy on a major victory, and subjugate on a decisive victory.  You can, of course, always choose any "lesser" option you qualify for.  This might also be done based on force strength at the end of the battle instead of victory level.  The point is that this would make the strategic map decision making more dynamic as you are now having to decide what level of victory/remaining force strength you are wanting in each battle location instead of just whatever is the bare minimum to win the battle at each location.

This would be one very simple "rule change" that would have ripple effects throughout the entire design of the game and make everything a lot more dynamic and more complex of a situation for the player to work out.  All from this one little addition to what you were thinking, or "1 + 1 = Chess".

Can always include different kinds of trade (supplies/information) while at least neutral, and perhaps an "Ally" option where they keep their ai autonomy, becoming "one of your cities" but one you don't directly control. ("good" option)

The real thing there is how much more dynamic it makes the decision making process on the strategic map.  With just the options alone the player never has any reason, ever, to use more than the minimum force required to win.  By adding the requirements of either victory level, or remaining force strength, or a blending of both, the player has 2 or 3 different "force levels" they might decide to send to that battle and, of course, sending them there means they won't be going somewhere else.  So now instead of "what do I want to take" it becomes "what do I want to take, and how do I want to take it".

Just two rule systems that interact with each other to become exponentially more than the sum of their parts, or, "1 + 1 = Chess".

"Subjugate" is a higher level of victory, in other words would require far more force, than simply destroying.  You are using gaming world terms like "vassal" that are making you think in past games you've played, maybe Europa Universalis in this case, and you are thinking in game terminology and mechainics instead of thinking about the real world.  This is a classic, common problem for people who make games.  Always think about the real-world origins behind common terms used in gaming like "Vassal".  

To destroy a town, you could do that with artillery, or even just setting it on fire.  To "subjugate" a town would involve a "post war occupation" and what you probably know as "nation building".  Obviously, once you think of it in those real world terms, "subjugating" is the hardest, most time consuming, and most force intensive (requires the most force for the longest period of time) that you could attempt.