Generally, low-reputation IP addresses are associated with scams, spammers, and other similar things. Gaming somehow gets lumped into this bucket in some jurisdictions, but that hurts you worldwide (similar with other "sin businesses" like porn). These blacklists get published (I think there's some parts of BGP that make this happen, but I'm not quite sure what the mechanism is), and being on any one of them hurts your traffic everywhere because it becomes suspect.
I agree with you that this mix of compliance, engineering, and sales is gross. If this was the issue, they should have just told the OP.
I guess I'll see in a while if this was also just a sales tactic from Cloudflare or not.
The most (in)famous case is China's GFW which banes IPs all the time. Yes, other websites often get accidentally blocked, but they don't care. Moreover, you can't even communicate with them because there are no official legal regulations. This is something what any CDN or cloud providers have to deal all the time.
FYI, we also fully block users from the US (due to regulations).
My problem here is mainly the unprofessional communication and huge mess of mixing "compliance" with sales, without giving any clear information or options. And then the removal of our account without warning while we were still talking to them.