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I wasn't sure so I just watched this let's play, relevant sequence at 5:00 - 5:18
https://youtu.be/GZobEDo103w?t=305
Also I checked the original Japanese wording, and it heavily implies a continuous process, something along the lines of "between Federation and Empire the storm of war was still swelling by the blowing wind". I'm being overly literal here purposefully, the phrase they use basically means that the storm is continuing to blow and engulf things in its flames, as far as I understand it.
And yes that would mean that VC4 is slightly cutting into the timeline with its temporary ceasefire. Not really any worse than the whole "Cordelia got overwhelming support" except oops she kinda didn't.
I don't think Claude knew what it was, the game doesn't show any way he could've found out (and I have the feeling he'd be a lot louder about refusing if he did know). Our boy Wallace is just smart enough not to accept shady proposals from politician types
The other possibility is that the Federation and the Empire are not in outright conflict but are fighting proxy wars like what happened in the Cold War. So possibly no overt hostilities but behind the scenes things might be happening.