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Yes the AI is effected by supply lines regardless of difficulty.
But on the higher difficulties they have so much upkeep reduction and bonuses to the economy that its kinda nullified anyway (as in, they will be able to afford multiple armies regardless of the penalty).
They also have a much larger background income then the player (again on higher difficulties), background income being a income you get no matter what, in combination with the other bonuses it results in the AI being able to have multiple army stacks from a single settlement even with the supply lines penalty.
Ah I see, this makes sense. Good to know for future reference, thanks.