Hardware Transcoding is not working

[gnattu]

Because it is not transcoding at all.

So Jellyfin just casually uses 70% CPU usage when direct streaming?

I can't see it is using 70% from your screenshot though. On most systems it won't use too much CPU for audio processing and video coping, but when it does it may have some reason behind that. But your video is really not transcoding that's why you won't see any iGPU usage.