Yes, it allows it, but it doesn't recognise it. You still get the silly 'you lose' screen at the end. However, it's not a major complaint. The strength of the game is that it does allow you to play in this way, and that makes me happy.
However, as to victory conditions, it would be nice formally to turn off the concept of 'victory' and just play as a simulator. Not essential, but nice. Most countries in the world today do not judge their success by how high they are ranked on the global power list.