Refund buyer with the locked funds?

Hello everyone, I listed an item for sale. However, the item purchased is no longer available as it was sold shortly before on another platform and has already been shipped. Now, as a seller I have the order cancellation option available, where I’m asked to refund the buyer. But at the moment eBay has blocked the payment pending shipment. And should I still refund even though I haven’t actually been paid?

Thanks to anyone who replies!