Source for it being encrypted: https://support.apple.com/en-in/HT202303 (but it says iOS 13 is required for that).
Does it restore (by default) if you buy a new iPhone? If yes, then Apple stores a copy of your key to go along with the encrypted data. If it is restorable, it's technically encrypted, but in practice Apple (and whomever Apple decrees) have access to it anyway.