I'm not sure it is error from Essentials mod, I asked Essentials Mod devs, they said Fabric API is broken and they are tracking it. I wonder if it is Fabric API bug?
Fabric Version: 0.16.14-1.21.6
Fabric API Version: 0.127.1-1.21.6
Essentials Mod Version: 1.3.8.2

Log:
latest.log

Video link (I can't upload here):
https://streamable.com/69chzy

What is the error / bug

Does it just not start or does something happen?

This doesn't look like a fabric API bug, this looks like essentials doing their stuff too late. Going to close for now, if the essentials people want to make an issue explaining why it's fapi's fault, or comment here we can investigate further

It's probably essential lol I agree. It has an atrocious code base that does a ton of stuff that it shouldn't it's like optifine.