Well, I have a theory.
Basically, after the destruction of planet Romulus, the situation in Romulan Space is not become better; but worse. Much-much worse than before. Previously, Romulan was the evil faction that is necessary to maintain the peace in the area. But after the government is gone, there is no one who can maintain the law, and the peace is shattered. An Empire that previously ruled by a single government now split apart. There are many new factions that born there. Many of them are extremist; and they fight to each other (just imagine it like Syria today. Except that there is no Assad). The worst part is, everyone of them hate Federation.
In Romulan space, there are many rumor that demonized Federation and Spock. For them, Spock is a traitor who destroy Romulus. He acted like he want to help. But at the critical point, he's vanished, and let the planet destroyed. So for them, fighting the Federation, and kill a vulcan is a kind of Crusade that will make them the hero of the people.
Yet, those Syria type of problem is not the worst matter that the Federation face.
Not every members of Federation share the same ideology as Earth and Vulcan. Some of them, specially who live near Romulan border were join because of an act of desperation. They joined Federation for protection. To avoid being conquered by the Romulan.
But after the destruction of Romulan, the need is lost. Suddenly, they become a major power that has enough power to influence the region. So, they think that staying as a member of Federation will only hinder their own ambition. The fall of Romulan Star Empire cause the vacuum of power in the immediate area. The previously neutral zone suddenly become available to everyone. Yet no Ex-Romulan Factions can establish enough power to rule over a vast region of space. So these Federation members see the opportunity, thus started to build up. But, no one ready to leave the Federation yet. The juicy Federation tech is still needed for them to establish their own power. So they pretend to be loyal, but at the same time expand their own territory to beyond the neutral zone. These traitors even sabotage Starfleet attempt to pacify the region.
At the same time, Section 31 warned about Dominion activity in the region. After their defeat in the last Dominion War, they become docile and friendly. But only at the surface. They still want to come back and take a score against Federation. Yet, they no longer have any power projection in the quadrant. Thanks to Sisko Wormhole.
So rather than challenge the Federation with their military might, today Dominion choose to play proxy. they active in the region in disguise as a trader. They choose Romulan Space as there are a lot of anti Federation elements in the area.
To compensate their lack of military power, Dominion Spies choose to sell their technologies to the factions that have some potential to shake their old foe. They even very generous when sharing their own tech. Like their ship building method and other critical military technologies.
This Geopolitical Challenge put Federation into disadvantaged. Specially when those Extremist Factions raid Human and Vulcan Colonies periodically. They have dispatched quite a number of fleets. To pacify the border and protect Federation colonies. But because of Federation nature as a pacifist, They restrict their own fleets in the region. Rather than invade their enemy, Federation choose to solve the problem, peacefully.
So at the end, they call Jeanluc Picard out of his retirement. The High command believe that Picard's expertise in Diplomacy, and his abundant experience as a ship captain can help the Federation to solve the problem. To give him the bullet for his mission, Starfleet raise his rank to Admiral, and give all Starfleet elements near the Romulan border for Picard to command.
But for Picard, coming back to the Romulan space is the same as opening the wound in his mind. A failure that made him retired years ago.