VSCode extension doesn't read env variables from ~/.claude/settings.json

[vincent4j]

Description

After updating to version 2.1.25, the VSCode extension no longer reads environment variables from ~/.claude/settings.json.

When launching VSCode from Dock, the extension shows the login screen instead of entering chat mode, even though ANTHROPIC_API_KEY and ANTHROPIC_BASE_URL are configured in settings.json.

Steps to Reproduce

1. Configure ~/.claude/settings.json with:

   {
     "env": {
       "ANTHROPIC_API_KEY": "your-api-key",
       "ANTHROPIC_BASE_URL": "http://127.0.0.1:8045"
     }
   }

2. Launch VSCode from Dock (not from terminal)
3. Open Claude Code extension → shows login screen instead of chat

Expected Behavior

The extension should read env variables from ~/.claude/settings.json and enter chat mode directly.

Workaround

Setting system-level environment variables via launchctl setenv works, but this shouldn't be necessary.

Environment

• macOS
• Claude Code for VS Code: 2.1.25
• Using local proxy

[github-actions]

Found 3 possible duplicate issues:

1. [BUG] [FIX] VS Code Extension does not recognize ANTHROPIC_BASE_URL and shows login screen #20271
2. [BUG] VS Code extension ignores third-party provider environment variables during authentication check #12361
3. VS Code extension ignores proxy settings from ~/.claude/settings.json and environment variables #15684

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🤖 Generated with Claude Code

[isSpicyCode]

same issue on claude code TUI

[github-actions]

Closing for now — inactive for too long. Please open a new issue if this is still relevant.