FWIW I don't think anything Kagi is doing is unethical. If I did - if I did feel it was unethical to spend money at a company that is in a country that does war crimes - I'd also have to feel that almost all spending was unethical, including things like buying lunch.
On a secondary point, if we want more ethical things to exist, we have to create them. If we want an ethical alternative to Mullvad it's on us to do it.
I think the situation you're in affects what you can reasonably do and hence what can be considered "ethical". You cannot opt out of paying taxes (and buying lunch), but it is possible here for me to avoid funding this war and try to seek better alternatives.
Did you go out of your way to buy a non-Chinese-made phone? You technically have a choice there, but not much of one. About as much of a choice as you have in the search engine business.
On a secondary point, if we want more ethical things to exist, we have to create them. If we want an ethical alternative to Mullvad it's on us to do it.