yes ofc he's upset that she's hugging another guy, but it's not just that.
you guys need to remember he literally thinks cirrus and ri-in are just tutor classmates. he does not know that cirrus and ri-in are actually close childhood friends bc cirrus literally lied to him about how close they actually were when he has initially introduced ri-in to chan-il. so of course chanil is probably confused as fuck as to why theyre so close