How to respond to potential power abuse from project supervisor?
Let me make two suggestions, though I can only really recommend the first. 

You could just go along and get along, but mostly as a strategic move that helps you get away without damage to your future. For a single course a nice grade would be good and you will have learned a lot from the project no matter what the write-up looks like. If it is to be published, especially as a joint publication, then you need to take care that what you say is actually valid, of course. I recommend this course since the professor has power over you and has threatened to use it against you. Strategic retreat is often the best course of action. 

The second, burn the bridges strategy, is to send the entire correspondence stream to the department head and ask for advice. This may be what you really want to do, and it might have some positive outcome for others in the future, but it is also the one most likely to damage you and your career. If you embark on this course, copy the head on all correspondence. 

There are options in between but most of them might have the flavor of one or the other of these. I recommend something closer to the first option. 

For doctoral research, however, the situation is a lot more dire and might require drastic (escape) action such as changing supervisors or even institutions. But your undergraduate program will ultimately be judged on a lot of things, not just this project.