Mercy-killing isn't legal, no. But it's not that they shafted the orcs and that justifies the orcs wiping them out or that the orcs lack culpability, it's that even from a view of pure self-interest, the draenei's actions were braindead and actively contributed to them ending up as they did.
Also to amend a previous comment, the draenei did fight the Bladewind Clan, and despite being able to easily defeat it, Velen opted to live and let live with them. He didn't contact them nor any of the more reasonable clans like the Frostwolves, Whiteclaw or Shadowmoon and he didn't even have a show of force despite having humiliated the Gorians a little while ago.