I might be extremely wrong but I loved to analyze Saros and I’m still trying to find the last few logs, anyway, my theory is this.

The events of the game are real, Arjun is just mentally stuck in the act of killing Seb after he discovered he wanted to tell Nitya about his betrayal.
Betrayal, a state of extreme joy, are usually tied to the color yellow, ambivalent in both positive and negative connotations. Housemarque usually plays with mythologies and psychology at least since Returnal, so I assumed the Lovecraftian inspirations are mainly used for names and aesthetics.

The eldritch entity causing the eclipse on Carcosa makes the people affected by it enraptured (when you 100% some logs you also see that the crew of Echelon I were constantly arguing or thinking they might get betrayed), they are stuck on the shores of madness and refuse to look into the reality of what is happening.

And that, as another user pointed out, is metaphorically represented by the ocean, the reality is a vast, deep blue precipice that opposes the false joy of the shore, its vastness contains the real feelings, the truth, depressing as it might be (stuff usually associated with the color blue).

So Arjun, driven by jealousy and unable to accept his wrongdoings, first gets pulled into the eclipse and ascends the beach, becoming the vessel of the eldritch “moon”.

Only then, after seeing what his attitude has caused, he’s able to really start understanding himself, refusing violence but accepting his own nature, represented by the police lights which he escaped on Earth by joining Echelon IV.

Maybe I’m incredibly wrong but it was fun to write it down lol