diff --git a/src/services/api/errors.openaiCompatibility.test.ts b/src/services/api/errors.openaiCompatibility.test.ts
new file mode 100644
index 00000000..e79f7b59
--- /dev/null
+++ b/src/services/api/errors.openaiCompatibility.test.ts
@@ -0,0 +1,44 @@
+import { APIError } from '@anthropic-ai/sdk'
+import { expect, test } from 'bun:test'
+
+import { getAssistantMessageFromError } from './errors.js'
+
+function getFirstText(message: ReturnType<typeof getAssistantMessageFromError>): string {
+  const first = message.message.content[0]
+  if (!first || typeof first !== 'object' || !('text' in first)) {
+    return ''
+  }
+  return typeof first.text === 'string' ? first.text : ''
+}
+
+test('maps endpoint_not_found category markers to actionable setup guidance', () => {
+  const error = APIError.generate(
+    404,
+    undefined,
+    'OpenAI API error 404: Not Found [openai_category=endpoint_not_found] Hint: Confirm OPENAI_BASE_URL includes /v1.',
+    new Headers(),
+  )
+
+  const message = getAssistantMessageFromError(error, 'qwen2.5-coder:7b')
+  const text = getFirstText(message)
+
+  expect(message.isApiErrorMessage).toBe(true)
+  expect(text).toContain('Provider endpoint was not found')
+  expect(text).toContain('OPENAI_BASE_URL')
+  expect(text).toContain('/v1')
+})
+
+test('maps tool_call_incompatible category markers to model/tool guidance', () => {
+  const error = APIError.generate(
+    400,
+    undefined,
+    'OpenAI API error 400: tool_calls are not supported [openai_category=tool_call_incompatible]',
+    new Headers(),
+  )
+
+  const message = getAssistantMessageFromError(error, 'qwen2.5-coder:7b')
+  const text = getFirstText(message)
+
+  expect(text).toContain('rejected tool-calling payloads')
+  expect(text).toContain('/model')
+})
diff --git a/src/services/api/errors.ts b/src/services/api/errors.ts
index eb8fc1ed..09249c53 100644
--- a/src/services/api/errors.ts
+++ b/src/services/api/errors.ts
@@ -50,9 +50,110 @@ import {
 } from '../claudeAiLimits.js'
 import { shouldProcessRateLimits } from '../rateLimitMocking.js' // Used for /mock-limits command
 import { extractConnectionErrorDetails, formatAPIError } from './errorUtils.js'
+import {
+  extractOpenAICategoryMarker,
+  type OpenAICompatibilityFailureCategory,
+} from './openaiErrorClassification.js'
 
 export const API_ERROR_MESSAGE_PREFIX = 'API Error'
 
+function stripOpenAICompatibilityMetadata(message: string): string {
+  return message
+    .replace(/\s*\[openai_category=[a-z_]+\]\s*/g, ' ')
+    .replace(/\s{2,}/g, ' ')
+    .trim()
+}
+
+function mapOpenAICompatibilityFailureToAssistantMessage(options: {
+  category: OpenAICompatibilityFailureCategory
+  model: string
+  rawMessage: string
+}): AssistantMessage {
+  const switchCmd = getIsNonInteractiveSession() ? '--model' : '/model'
+  const compactHint = getIsNonInteractiveSession()
+    ? 'Reduce prompt size or start a new session.'
+    : 'Run /compact or start a new session with /new.'
+
+  switch (options.category) {
+    case 'localhost_resolution_failed':
+    case 'connection_refused':
+      return createAssistantAPIErrorMessage({
+        content:
+          'Could not connect to the local OpenAI-compatible provider. Ensure the local server is running, then use OPENAI_BASE_URL=http://127.0.0.1:11434/v1 for Ollama.',
+        error: 'unknown',
+      })
+
+    case 'endpoint_not_found':
+      return createAssistantAPIErrorMessage({
+        content:
+          'Provider endpoint was not found. Confirm OPENAI_BASE_URL targets an OpenAI-compatible /v1 endpoint (for Ollama: http://127.0.0.1:11434/v1).',
+        error: 'invalid_request',
+      })
+
+    case 'model_not_found':
+      return createAssistantAPIErrorMessage({
+        content: `The selected model (${options.model}) is not available on this provider. Run ${switchCmd} to choose another model, or verify installed local models (for Ollama: ollama list).`,
+        error: 'invalid_request',
+      })
+
+    case 'auth_invalid':
+      return createAssistantAPIErrorMessage({
+        content: `${API_ERROR_MESSAGE_PREFIX}: Authentication failed for your OpenAI-compatible provider. Verify OPENAI_API_KEY and endpoint-specific auth requirements.`,
+        error: 'authentication_failed',
+      })
+
+    case 'rate_limited':
+      return createAssistantAPIErrorMessage({
+        content: `${API_ERROR_MESSAGE_PREFIX}: Provider rate limit reached. Retry in a few seconds.`,
+        error: 'rate_limit',
+      })
+
+    case 'request_timeout':
+      return createAssistantAPIErrorMessage({
+        content: `${API_ERROR_MESSAGE_PREFIX}: Provider request timed out. Local models may be loading or overloaded; retry shortly or increase API_TIMEOUT_MS.`,
+        error: 'unknown',
+      })
+
+    case 'context_overflow':
+      return createAssistantAPIErrorMessage({
+        content: `The conversation exceeded the provider context limit. ${compactHint}`,
+        error: 'invalid_request',
+      })
+
+    case 'tool_call_incompatible':
+      return createAssistantAPIErrorMessage({
+        content: `The selected provider/model rejected tool-calling payloads. Try ${switchCmd} to pick a tool-capable model or continue without tools.`,
+        error: 'invalid_request',
+      })
+
+    case 'malformed_provider_response':
+      return createAssistantAPIErrorMessage({
+        content: `${API_ERROR_MESSAGE_PREFIX}: Provider returned a malformed response. Confirm endpoint compatibility and check local proxy/network middleware.`,
+        error: 'unknown',
+        errorDetails: stripOpenAICompatibilityMetadata(options.rawMessage),
+      })
+
+    case 'provider_unavailable':
+      return createAssistantAPIErrorMessage({
+        content: `${API_ERROR_MESSAGE_PREFIX}: Provider is temporarily unavailable. Retry in a moment.`,
+        error: 'unknown',
+      })
+
+    case 'network_error':
+    case 'unknown':
+      return createAssistantAPIErrorMessage({
+        content: `${API_ERROR_MESSAGE_PREFIX}: ${stripOpenAICompatibilityMetadata(options.rawMessage)}`,
+        error: 'unknown',
+      })
+
+    default:
+      return createAssistantAPIErrorMessage({
+        content: `${API_ERROR_MESSAGE_PREFIX}: ${stripOpenAICompatibilityMetadata(options.rawMessage)}`,
+        error: 'unknown',
+      })
+  }
+}
+
 export function startsWithApiErrorPrefix(text: string): boolean {
   return (
     text.startsWith(API_ERROR_MESSAGE_PREFIX) ||
@@ -457,6 +558,19 @@ export function getAssistantMessageFromError(
     })
   }
 
+  // OpenAI-compatible transport and HTTP failures include structured category
+  // markers from openaiShim.ts for actionable end-user remediation.
+  if (error instanceof APIError) {
+    const openaiCategory = extractOpenAICategoryMarker(error.message)
+    if (openaiCategory) {
+      return mapOpenAICompatibilityFailureToAssistantMessage({
+        category: openaiCategory,
+        model,
+        rawMessage: error.message,
+      })
+    }
+  }
+
   // Check for emergency capacity off switch for Opus PAYG users
   if (
     error instanceof Error &&
diff --git a/src/services/api/openaiErrorClassification.test.ts b/src/services/api/openaiErrorClassification.test.ts
new file mode 100644
index 00000000..ddcc1870
--- /dev/null
+++ b/src/services/api/openaiErrorClassification.test.ts
@@ -0,0 +1,97 @@
+import { expect, test } from 'bun:test'
+
+import {
+  buildOpenAICompatibilityErrorMessage,
+  classifyOpenAIHttpFailure,
+  classifyOpenAINetworkFailure,
+  extractOpenAICategoryMarker,
+  formatOpenAICategoryMarker,
+} from './openaiErrorClassification.js'
+
+test('classifies localhost ECONNREFUSED as connection_refused', () => {
+  const error = Object.assign(new TypeError('fetch failed'), {
+    code: 'ECONNREFUSED',
+  })
+
+  const failure = classifyOpenAINetworkFailure(error, {
+    url: 'http://localhost:11434/v1/chat/completions',
+  })
+
+  expect(failure.category).toBe('connection_refused')
+  expect(failure.retryable).toBe(true)
+  expect(failure.code).toBe('ECONNREFUSED')
+  expect(failure.hint).toContain('local server is running')
+})
+
+test('classifies localhost ENOTFOUND as localhost_resolution_failed', () => {
+  const error = Object.assign(new TypeError('getaddrinfo ENOTFOUND localhost'), {
+    code: 'ENOTFOUND',
+  })
+
+  const failure = classifyOpenAINetworkFailure(error, {
+    url: 'http://localhost:11434/v1/chat/completions',
+  })
+
+  expect(failure.category).toBe('localhost_resolution_failed')
+  expect(failure.retryable).toBe(true)
+  expect(failure.code).toBe('ENOTFOUND')
+  expect(failure.hint).toContain('127.0.0.1')
+})
+
+test('classifies model-not-found 404 responses', () => {
+  const failure = classifyOpenAIHttpFailure({
+    status: 404,
+    body: 'The model qwen2.5-coder:7b was not found',
+  })
+
+  expect(failure.category).toBe('model_not_found')
+  expect(failure.retryable).toBe(false)
+})
+
+test('classifies generic 404 responses as endpoint_not_found', () => {
+  const failure = classifyOpenAIHttpFailure({
+    status: 404,
+    body: 'Not Found',
+  })
+
+  expect(failure.category).toBe('endpoint_not_found')
+  expect(failure.hint).toContain('/v1')
+})
+
+test('classifies context-overflow responses', () => {
+  const failure = classifyOpenAIHttpFailure({
+    status: 500,
+    body: 'request too large: maximum context length exceeded',
+  })
+
+  expect(failure.category).toBe('context_overflow')
+  expect(failure.retryable).toBe(false)
+})
+
+test('classifies tool compatibility failures', () => {
+  const failure = classifyOpenAIHttpFailure({
+    status: 400,
+    body: 'tool_calls are not supported by this model',
+  })
+
+  expect(failure.category).toBe('tool_call_incompatible')
+})
+
+test('embeds and extracts category markers in formatted messages', () => {
+  const marker = formatOpenAICategoryMarker('endpoint_not_found')
+  expect(marker).toBe('[openai_category=endpoint_not_found]')
+
+  const formatted = buildOpenAICompatibilityErrorMessage('OpenAI API error 404: Not Found', {
+    category: 'endpoint_not_found',
+    hint: 'Confirm OPENAI_BASE_URL includes /v1.',
+  })
+
+  expect(formatted).toContain('[openai_category=endpoint_not_found]')
+  expect(formatted).toContain('Hint: Confirm OPENAI_BASE_URL includes /v1.')
+  expect(extractOpenAICategoryMarker(formatted)).toBe('endpoint_not_found')
+})
+
+test('ignores unknown category markers during extraction', () => {
+  const malformed = 'OpenAI API error 500 [openai_category=totally_fake_category]'
+  expect(extractOpenAICategoryMarker(malformed)).toBeUndefined()
+})
diff --git a/src/services/api/openaiErrorClassification.ts b/src/services/api/openaiErrorClassification.ts
new file mode 100644
index 00000000..3f86cf96
--- /dev/null
+++ b/src/services/api/openaiErrorClassification.ts
@@ -0,0 +1,355 @@
+export type OpenAICompatibilityFailureCategory =
+  | 'connection_refused'
+  | 'localhost_resolution_failed'
+  | 'request_timeout'
+  | 'network_error'
+  | 'auth_invalid'
+  | 'rate_limited'
+  | 'model_not_found'
+  | 'endpoint_not_found'
+  | 'context_overflow'
+  | 'tool_call_incompatible'
+  | 'malformed_provider_response'
+  | 'provider_unavailable'
+  | 'unknown'
+
+export type OpenAICompatibilityFailure = {
+  source: 'network' | 'http'
+  category: OpenAICompatibilityFailureCategory
+  retryable: boolean
+  message: string
+  hint?: string
+  code?: string
+  status?: number
+}
+
+const OPENAI_CATEGORY_MARKER_PREFIX = '[openai_category='
+
+const LOCALHOST_HOSTNAMES = new Set(['localhost', '127.0.0.1', '::1'])
+
+const OPENAI_COMPATIBILITY_FAILURE_CATEGORIES: ReadonlySet<OpenAICompatibilityFailureCategory> =
+  new Set<OpenAICompatibilityFailureCategory>([
+    'connection_refused',
+    'localhost_resolution_failed',
+    'request_timeout',
+    'network_error',
+    'auth_invalid',
+    'rate_limited',
+    'model_not_found',
+    'endpoint_not_found',
+    'context_overflow',
+    'tool_call_incompatible',
+    'malformed_provider_response',
+    'provider_unavailable',
+    'unknown',
+  ])
+
+function isOpenAICompatibilityFailureCategory(
+  value: string,
+): value is OpenAICompatibilityFailureCategory {
+  return OPENAI_COMPATIBILITY_FAILURE_CATEGORIES.has(
+    value as OpenAICompatibilityFailureCategory,
+  )
+}
+
+function getErrorCode(error: unknown): string | undefined {
+  let current: unknown = error
+  const maxDepth = 5
+
+  for (let depth = 0; depth < maxDepth; depth++) {
+    if (
+      current &&
+      typeof current === 'object' &&
+      'code' in current &&
+      typeof (current as { code?: unknown }).code === 'string'
+    ) {
+      return (current as { code: string }).code
+    }
+
+    if (
+      current &&
+      typeof current === 'object' &&
+      'cause' in current &&
+      (current as { cause?: unknown }).cause !== current
+    ) {
+      current = (current as { cause?: unknown }).cause
+      continue
+    }
+
+    break
+  }
+
+  return undefined
+}
+
+function getHostname(url: string): string | null {
+  try {
+    return new URL(url).hostname.toLowerCase()
+  } catch {
+    return null
+  }
+}
+
+function isLocalhostLikeHostname(hostname: string | null): boolean {
+  if (!hostname) return false
+  if (LOCALHOST_HOSTNAMES.has(hostname)) return true
+  return /^127\./.test(hostname)
+}
+
+function isContextOverflowMessage(body: string): boolean {
+  const lower = body.toLowerCase()
+  return (
+    lower.includes('too many tokens') ||
+    lower.includes('request too large') ||
+    lower.includes('context length') ||
+    lower.includes('maximum context') ||
+    lower.includes('input length') ||
+    lower.includes('payload too large') ||
+    lower.includes('prompt is too long')
+  )
+}
+
+function isToolCompatibilityMessage(body: string): boolean {
+  const lower = body.toLowerCase()
+  return (
+    lower.includes('tool_calls') ||
+    lower.includes('tool_call') ||
+    lower.includes('tool_use') ||
+    lower.includes('tool_result') ||
+    lower.includes('function calling') ||
+    lower.includes('function call')
+  )
+}
+
+function isMalformedProviderResponse(body: string): boolean {
+  const lower = body.toLowerCase()
+  return (
+    lower.includes('<!doctype html') ||
+    lower.includes('<html') ||
+    lower.includes('invalid json') ||
+    lower.includes('malformed') ||
+    lower.includes('unexpected token') ||
+    lower.includes('cannot parse') ||
+    lower.includes('not valid json')
+  )
+}
+
+function isModelNotFoundMessage(body: string): boolean {
+  const lower = body.toLowerCase()
+  return (
+    lower.includes('model') &&
+    (
+      lower.includes('not found') ||
+      lower.includes('does not exist') ||
+      lower.includes('unknown model') ||
+      lower.includes('unavailable model')
+    )
+  )
+}
+
+export function formatOpenAICategoryMarker(
+  category: OpenAICompatibilityFailureCategory,
+): string {
+  return `${OPENAI_CATEGORY_MARKER_PREFIX}${category}]`
+}
+
+export function extractOpenAICategoryMarker(
+  message: string,
+): OpenAICompatibilityFailureCategory | undefined {
+  const match = message.match(/\[openai_category=([a-z_]+)]/)
+  const category = match?.[1]
+
+  if (!category || !isOpenAICompatibilityFailureCategory(category)) {
+    return undefined
+  }
+
+  return category
+}
+
+export function buildOpenAICompatibilityErrorMessage(
+  baseMessage: string,
+  failure: Pick<OpenAICompatibilityFailure, 'category' | 'hint'>,
+): string {
+  const marker = formatOpenAICategoryMarker(failure.category)
+  const hint = failure.hint ? ` Hint: ${failure.hint}` : ''
+  return `${baseMessage} ${marker}${hint}`
+}
+
+export function classifyOpenAINetworkFailure(
+  error: unknown,
+  options: { url: string },
+): OpenAICompatibilityFailure {
+  const message = error instanceof Error ? error.message : String(error)
+  const lowerMessage = message.toLowerCase()
+  const code = getErrorCode(error)
+  const hostname = getHostname(options.url)
+  const isLocalHost = isLocalhostLikeHostname(hostname)
+
+  if (
+    code === 'ETIMEDOUT' ||
+    code === 'UND_ERR_CONNECT_TIMEOUT' ||
+    lowerMessage.includes('timeout') ||
+    lowerMessage.includes('timed out') ||
+    lowerMessage.includes('aborterror')
+  ) {
+    return {
+      source: 'network',
+      category: 'request_timeout',
+      retryable: true,
+      message,
+      code,
+      hint: 'The provider took too long to respond. Check local model load time or increase API timeout.',
+    }
+  }
+
+  if (
+    isLocalHost &&
+    (
+      code === 'ENOTFOUND' ||
+      code === 'EAI_AGAIN' ||
+      lowerMessage.includes('getaddrinfo') ||
+      (code === undefined && lowerMessage.includes('fetch failed'))
+    )
+  ) {
+    return {
+      source: 'network',
+      category: 'localhost_resolution_failed',
+      retryable: true,
+      message,
+      code,
+      hint: 'Localhost failed for this request. Retry with 127.0.0.1 and confirm Ollama is serving on the configured port.',
+    }
+  }
+
+  if (code === 'ECONNREFUSED') {
+    return {
+      source: 'network',
+      category: 'connection_refused',
+      retryable: true,
+      message,
+      code,
+      hint: isLocalHost
+        ? 'Connection to the local provider was refused. Ensure the local server is running and listening on the configured port.'
+        : 'Connection was refused by the provider endpoint. Ensure the server is running and the port is correct.',
+    }
+  }
+
+  return {
+    source: 'network',
+    category: 'network_error',
+    retryable: true,
+    message,
+    code,
+    hint: 'Network transport failed before a provider response was received.',
+  }
+}
+
+export function classifyOpenAIHttpFailure(options: {
+  status: number
+  body: string
+}): OpenAICompatibilityFailure {
+  const body = options.body ?? ''
+
+  if (options.status === 401 || options.status === 403) {
+    return {
+      source: 'http',
+      category: 'auth_invalid',
+      retryable: false,
+      status: options.status,
+      message: body,
+      hint: 'Authentication failed. Verify API key, token source, and endpoint-specific auth headers.',
+    }
+  }
+
+  if (options.status === 429) {
+    return {
+      source: 'http',
+      category: 'rate_limited',
+      retryable: true,
+      status: options.status,
+      message: body,
+      hint: 'Provider rate-limited the request. Retry after backoff.',
+    }
+  }
+
+  if (options.status === 404 && isModelNotFoundMessage(body)) {
+    return {
+      source: 'http',
+      category: 'model_not_found',
+      retryable: false,
+      status: options.status,
+      message: body,
+      hint: 'The selected model is not installed or not available on this endpoint.',
+    }
+  }
+
+  if (options.status === 404) {
+    return {
+      source: 'http',
+      category: 'endpoint_not_found',
+      retryable: false,
+      status: options.status,
+      message: body,
+      hint: 'Endpoint was not found. Confirm OPENAI_BASE_URL includes /v1 for OpenAI-compatible local providers.',
+    }
+  }
+
+  if (
+    options.status === 413 ||
+    ((options.status === 400 || options.status >= 500) &&
+      isContextOverflowMessage(body))
+  ) {
+    return {
+      source: 'http',
+      category: 'context_overflow',
+      retryable: false,
+      status: options.status,
+      message: body,
+      hint: 'Prompt context exceeded model/server limits. Reduce context or increase provider context length.',
+    }
+  }
+
+  if (options.status === 400 && isToolCompatibilityMessage(body)) {
+    return {
+      source: 'http',
+      category: 'tool_call_incompatible',
+      retryable: false,
+      status: options.status,
+      message: body,
+      hint: 'Provider/model rejected tool-calling payload. Retry without tools or use a tool-capable model.',
+    }
+  }
+
+  if (
+    (options.status >= 200 && options.status < 300 && isMalformedProviderResponse(body)) ||
+    (options.status >= 400 && isMalformedProviderResponse(body))
+  ) {
+    return {
+      source: 'http',
+      category: 'malformed_provider_response',
+      retryable: false,
+      status: options.status,
+      message: body,
+      hint: 'Provider returned malformed or non-JSON response where JSON was expected.',
+    }
+  }
+
+  if (options.status >= 500) {
+    return {
+      source: 'http',
+      category: 'provider_unavailable',
+      retryable: true,
+      status: options.status,
+      message: body,
+      hint: 'Provider reported a server-side failure. Retry after a short delay.',
+    }
+  }
+
+  return {
+    source: 'http',
+    category: 'unknown',
+    retryable: false,
+    status: options.status,
+    message: body,
+  }
+}
diff --git a/src/services/api/openaiShim.diagnostics.test.ts b/src/services/api/openaiShim.diagnostics.test.ts
new file mode 100644
index 00000000..9fbcfafd
--- /dev/null
+++ b/src/services/api/openaiShim.diagnostics.test.ts
@@ -0,0 +1,119 @@
+import { afterEach, expect, mock, test } from 'bun:test'
+
+const originalFetch = globalThis.fetch
+const originalEnv = {
+  OPENAI_BASE_URL: process.env.OPENAI_BASE_URL,
+  OPENAI_API_KEY: process.env.OPENAI_API_KEY,
+  OPENAI_MODEL: process.env.OPENAI_MODEL,
+}
+
+function restoreEnv(key: string, value: string | undefined): void {
+  if (value === undefined) {
+    delete process.env[key]
+  } else {
+    process.env[key] = value
+  }
+}
+
+afterEach(() => {
+  globalThis.fetch = originalFetch
+  restoreEnv('OPENAI_BASE_URL', originalEnv.OPENAI_BASE_URL)
+  restoreEnv('OPENAI_API_KEY', originalEnv.OPENAI_API_KEY)
+  restoreEnv('OPENAI_MODEL', originalEnv.OPENAI_MODEL)
+  mock.restore()
+})
+
+test('logs classified transport diagnostics with category and code', async () => {
+  const debugSpy = mock(() => {})
+  mock.module('../../utils/debug.js', () => ({
+    logForDebugging: debugSpy,
+  }))
+
+  const nonce = `${Date.now()}-${Math.random()}`
+  const { createOpenAIShimClient } = await import(`./openaiShim.ts?ts=${nonce}`)
+
+  process.env.OPENAI_BASE_URL = 'http://localhost:11434/v1'
+  process.env.OPENAI_API_KEY = 'ollama'
+
+  const transportError = Object.assign(new TypeError('fetch failed'), {
+    code: 'ECONNREFUSED',
+  })
+
+  globalThis.fetch = mock(async () => {
+    throw transportError
+  }) as typeof globalThis.fetch
+
+  const client = createOpenAIShimClient({}) as {
+    beta: {
+      messages: {
+        create: (params: Record<string, unknown>) => Promise<unknown>
+      }
+    }
+  }
+
+  await expect(
+    client.beta.messages.create({
+      model: 'qwen2.5-coder:7b',
+      messages: [{ role: 'user', content: 'hello' }],
+      max_tokens: 64,
+      stream: false,
+    }),
+  ).rejects.toThrow('openai_category=connection_refused')
+
+  const transportLog = debugSpy.mock.calls.find(call =>
+    typeof call?.[0] === 'string' && call[0].includes('transport failure'),
+  )
+
+  expect(transportLog).toBeDefined()
+  expect(String(transportLog?.[0])).toContain('category=connection_refused')
+  expect(String(transportLog?.[0])).toContain('code=ECONNREFUSED')
+  expect(transportLog?.[1]).toEqual({ level: 'warn' })
+})
+
+test('redacts credentials in transport diagnostic URL logs', async () => {
+  const debugSpy = mock(() => {})
+  mock.module('../../utils/debug.js', () => ({
+    logForDebugging: debugSpy,
+  }))
+
+  const nonce = `${Date.now()}-${Math.random()}`
+  const { createOpenAIShimClient } = await import(`./openaiShim.ts?ts=${nonce}`)
+
+  process.env.OPENAI_BASE_URL = 'http://user:supersecret@localhost:11434/v1'
+  process.env.OPENAI_API_KEY = 'supersecret'
+
+  const transportError = Object.assign(new TypeError('fetch failed'), {
+    code: 'ECONNREFUSED',
+  })
+
+  globalThis.fetch = mock(async () => {
+    throw transportError
+  }) as typeof globalThis.fetch
+
+  const client = createOpenAIShimClient({}) as {
+    beta: {
+      messages: {
+        create: (params: Record<string, unknown>) => Promise<unknown>
+      }
+    }
+  }
+
+  await expect(
+    client.beta.messages.create({
+      model: 'qwen2.5-coder:7b',
+      messages: [{ role: 'user', content: 'hello' }],
+      max_tokens: 64,
+      stream: false,
+    }),
+  ).rejects.toThrow('openai_category=connection_refused')
+
+  const transportLog = debugSpy.mock.calls.find(call =>
+    typeof call?.[0] === 'string' && call[0].includes('transport failure'),
+  )
+
+  expect(transportLog).toBeDefined()
+  const logLine = String(transportLog?.[0])
+  expect(logLine).toContain('url=http://redacted:redacted@localhost:11434/v1/chat/completions')
+  expect(logLine).not.toContain('user:supersecret')
+  expect(logLine).not.toContain('supersecret@')
+})
diff --git a/src/services/api/openaiShim.test.ts b/src/services/api/openaiShim.test.ts
index b0e31f97..5824967b 100644
--- a/src/services/api/openaiShim.test.ts
+++ b/src/services/api/openaiShim.test.ts
@@ -2775,3 +2775,84 @@ test('streaming: strips leaked reasoning preamble when split across multiple con
 
   expect(textDeltas).toEqual(['Hey! How can I help you today?'])
 })
+
+test('classifies localhost transport failures with actionable category marker', async () => {
+  process.env.OPENAI_BASE_URL = 'http://localhost:11434/v1'
+
+  const transportError = Object.assign(new TypeError('fetch failed'), {
+    code: 'ECONNREFUSED',
+  })
+
+  globalThis.fetch = (async () => {
+    throw transportError
+  }) as FetchType
+
+  const client = createOpenAIShimClient({}) as OpenAIShimClient
+
+  await expect(
+    client.beta.messages.create({
+      model: 'qwen2.5-coder:7b',
+      messages: [{ role: 'user', content: 'hello' }],
+      max_tokens: 64,
+      stream: false,
+    }),
+  ).rejects.toThrow('openai_category=connection_refused')
+
+  await expect(
+    client.beta.messages.create({
+      model: 'qwen2.5-coder:7b',
+      messages: [{ role: 'user', content: 'hello' }],
+      max_tokens: 64,
+      stream: false,
+    }),
+  ).rejects.toThrow('local server is running')
+})
+
+test('propagates AbortError without wrapping it as transport failure', async () => {
+  process.env.OPENAI_BASE_URL = 'http://localhost:11434/v1'
+
+  const abortError = new DOMException('The operation was aborted.', 'AbortError')
+  globalThis.fetch = (async () => {
+    throw abortError
+  }) as FetchType
+
+  const controller = new AbortController()
+  controller.abort()
+
+  const client = createOpenAIShimClient({}) as OpenAIShimClient
+
+  await expect(
+    client.beta.messages.create(
+      {
+        model: 'qwen2.5-coder:7b',
+        messages: [{ role: 'user', content: 'hello' }],
+        max_tokens: 64,
+        stream: false,
+      },
+      { signal: controller.signal },
+    ),
+  ).rejects.toBe(abortError)
+})
+
+test('classifies chat-completions endpoint 404 failures with endpoint_not_found marker', async () => {
+  process.env.OPENAI_BASE_URL = 'http://localhost:11434'
+
+  globalThis.fetch = (async () =>
+    new Response('Not Found', {
+      status: 404,
+      headers: {
+        'Content-Type': 'text/plain',
+      },
+    })) as FetchType
+
+  const client = createOpenAIShimClient({}) as OpenAIShimClient
+
+  await expect(
+    client.beta.messages.create({
+      model: 'qwen2.5-coder:7b',
+      messages: [{ role: 'user', content: 'hello' }],
+      max_tokens: 64,
+      stream: false,
+    }),
+  ).rejects.toThrow('openai_category=endpoint_not_found')
+})
diff --git a/src/services/api/openaiShim.ts b/src/services/api/openaiShim.ts
index b33acb38..e2bb665f 100644
--- a/src/services/api/openaiShim.ts
+++ b/src/services/api/openaiShim.ts
@@ -54,6 +54,11 @@ import {
   resolveProviderRequest,
   getGithubEndpointType,
 } from './providerConfig.js'
+import {
+  buildOpenAICompatibilityErrorMessage,
+  classifyOpenAIHttpFailure,
+  classifyOpenAINetworkFailure,
+} from './openaiErrorClassification.js'
 import { sanitizeSchemaForOpenAICompat } from '../../utils/schemaSanitizer.js'
 import { redactSecretValueForDisplay } from '../../utils/providerProfile.js'
 import {
@@ -83,6 +88,19 @@ const COPILOT_HEADERS: Record<string, string> = {
   'Copilot-Integration-Id': 'vscode-chat',
 }
 
+const SENSITIVE_URL_QUERY_PARAM_NAMES = [
+  'api_key',
+  'key',
+  'token',
+  'access_token',
+  'refresh_token',
+  'signature',
+  'sig',
+  'secret',
+  'password',
+  'authorization',
+]
+
 function isGithubModelsMode(): boolean {
   return isEnvTruthy(process.env.CLAUDE_CODE_USE_GITHUB)
 }
@@ -132,6 +150,34 @@ function formatRetryAfterHint(response: Response): string {
   return ra ? ` (Retry-After: ${ra})` : ''
 }
 
+function shouldRedactUrlQueryParam(name: string): boolean {
+  const lower = name.toLowerCase()
+  return SENSITIVE_URL_QUERY_PARAM_NAMES.some(token => lower.includes(token))
+}
+
+function redactUrlForDiagnostics(url: string): string {
+  try {
+    const parsed = new URL(url)
+    if (parsed.username) {
+      parsed.username = 'redacted'
+    }
+    if (parsed.password) {
+      parsed.password = 'redacted'
+    }
+
+    for (const key of parsed.searchParams.keys()) {
+      if (shouldRedactUrlQueryParam(key)) {
+        parsed.searchParams.set(key, 'redacted')
+      }
+    }
+
+    const serialized = parsed.toString()
+    return redactSecretValueForDisplay(serialized, process.env as SecretValueSource) ?? serialized
+  } catch {
+    return redactSecretValueForDisplay(url, process.env as SecretValueSource) ?? url
+  }
+}
+
 function sleepMs(ms: number): Promise<void> {
   return new Promise(resolve => setTimeout(resolve, ms))
 }
@@ -1430,12 +1476,97 @@ class OpenAIShimMessages {
     }
 
     const maxAttempts = isGithub ? GITHUB_429_MAX_RETRIES : 1
+
+    const throwClassifiedTransportError = (
+      error: unknown,
+      requestUrl: string,
+    ): never => {
+      if (options?.signal?.aborted) {
+        throw error
+      }
+
+      const failure = classifyOpenAINetworkFailure(error, {
+        url: requestUrl,
+      })
+      const redactedUrl = redactUrlForDiagnostics(requestUrl)
+      const safeMessage =
+        redactSecretValueForDisplay(
+          failure.message,
+          process.env as SecretValueSource,
+        ) || 'Request failed'
+
+      logForDebugging(
+        `[OpenAIShim] transport failure category=${failure.category} retryable=${failure.retryable} code=${failure.code ?? 'unknown'} method=POST url=${redactedUrl} model=${request.resolvedModel} message=${safeMessage}`,
+        { level: 'warn' },
+      )
+
+      throw APIError.generate(
+        503,
+        undefined,
+        buildOpenAICompatibilityErrorMessage(
+          `OpenAI API transport error: ${safeMessage}${failure.code ? ` (code=${failure.code})` : ''}`,
+          failure,
+        ),
+        new Headers(),
+      )
+    }
+
+    const throwClassifiedHttpError = (
+      status: number,
+      errorBody: string,
+      parsedBody: object | undefined,
+      responseHeaders: Headers,
+      requestUrl: string,
+      rateHint = '',
+    ): never => {
+      const failure = classifyOpenAIHttpFailure({
+        status,
+        body: errorBody,
+      })
+      const redactedUrl = redactUrlForDiagnostics(requestUrl)
+
+      logForDebugging(
+        `[OpenAIShim] request failed category=${failure.category} retryable=${failure.retryable} status=${status} method=POST url=${redactedUrl} model=${request.resolvedModel}`,
+        { level: 'warn' },
+      )
+
+      throw APIError.generate(
+        status,
+        parsedBody,
+        buildOpenAICompatibilityErrorMessage(
+          `OpenAI API error ${status}: ${errorBody}${rateHint}`,
+          failure,
+        ),
+        responseHeaders,
+      )
+    }
+
     let response: Response | undefined
     for (let attempt = 0; attempt < maxAttempts; attempt++) {
-      response = await fetchWithProxyRetry(chatCompletionsUrl, fetchInit)
+      try {
+        response = await fetchWithProxyRetry(chatCompletionsUrl, fetchInit)
+      } catch (error) {
+        const isAbortError =
+          fetchInit.signal?.aborted === true ||
+          (typeof DOMException !== 'undefined' &&
+            error instanceof DOMException &&
+            error.name === 'AbortError') ||
+          (typeof error === 'object' &&
+            error !== null &&
+            'name' in error &&
+            error.name === 'AbortError')
+
+        if (isAbortError) {
+          throw error
+        }
+
+        throwClassifiedTransportError(error, chatCompletionsUrl)
+      }
+
       if (response.ok) {
         return response
       }
+
       if (
         isGithub &&
         response.status === 429 &&
@@ -1505,34 +1636,43 @@ class OpenAIShimMessages {
             }
           }
 
-          const responsesResponse = await fetchWithProxyRetry(responsesUrl, {
-            method: 'POST',
-            headers,
-            body: JSON.stringify(responsesBody),
-            signal: options?.signal,
-          })
+          let responsesResponse: Response
+          try {
+            responsesResponse = await fetchWithProxyRetry(responsesUrl, {
+              method: 'POST',
+              headers,
+              body: JSON.stringify(responsesBody),
+              signal: options?.signal,
+            })
+          } catch (error) {
+            throwClassifiedTransportError(error, responsesUrl)
+          }
+          
           if (responsesResponse.ok) {
             return responsesResponse
           }
           const responsesErrorBody = await responsesResponse.text().catch(() => 'unknown error')
           let responsesErrorResponse: object | undefined
           try { responsesErrorResponse = JSON.parse(responsesErrorBody) } catch { /* raw text */ }
-          throw APIError.generate(
+          throwClassifiedHttpError(
             responsesResponse.status,
+            responsesErrorBody,
             responsesErrorResponse,
-            `OpenAI API error ${responsesResponse.status}: ${responsesErrorBody}`,
             responsesResponse.headers,
+            responsesUrl,
           )
         }
       }
 
       let errorResponse: object | undefined
       try { errorResponse = JSON.parse(errorBody) } catch { /* raw text */ }
-      throw APIError.generate(
+      throwClassifiedHttpError(
         response.status,
+        errorBody,
         errorResponse,
-        `OpenAI API error ${response.status}: ${errorBody}${rateHint}`,
         response.headers as unknown as Headers,
+        chatCompletionsUrl,
+        rateHint,
       )
     }
 
diff --git a/src/services/api/providerConfig.envDiagnostics.test.ts b/src/services/api/providerConfig.envDiagnostics.test.ts
new file mode 100644
index 00000000..c6d2dc19
--- /dev/null
+++ b/src/services/api/providerConfig.envDiagnostics.test.ts
@@ -0,0 +1,107 @@
+import { afterEach, expect, mock, test } from 'bun:test'
+
+const originalEnv = {
+  CLAUDE_CODE_USE_OPENAI: process.env.CLAUDE_CODE_USE_OPENAI,
+  CLAUDE_CODE_USE_MISTRAL: process.env.CLAUDE_CODE_USE_MISTRAL,
+  OPENAI_BASE_URL: process.env.OPENAI_BASE_URL,
+  OPENAI_MODEL: process.env.OPENAI_MODEL,
+  OPENAI_API_BASE: process.env.OPENAI_API_BASE,
+  MISTRAL_BASE_URL: process.env.MISTRAL_BASE_URL,
+  MISTRAL_MODEL: process.env.MISTRAL_MODEL,
+}
+
+function restoreEnv(key: string, value: string | undefined): void {
+  if (value === undefined) {
+    delete process.env[key]
+  } else {
+    process.env[key] = value
+  }
+}
+
+afterEach(() => {
+  restoreEnv('CLAUDE_CODE_USE_OPENAI', originalEnv.CLAUDE_CODE_USE_OPENAI)
+  restoreEnv('CLAUDE_CODE_USE_MISTRAL', originalEnv.CLAUDE_CODE_USE_MISTRAL)
+  restoreEnv('OPENAI_BASE_URL', originalEnv.OPENAI_BASE_URL)
+  restoreEnv('OPENAI_MODEL', originalEnv.OPENAI_MODEL)
+  restoreEnv('OPENAI_API_BASE', originalEnv.OPENAI_API_BASE)
+  restoreEnv('MISTRAL_BASE_URL', originalEnv.MISTRAL_BASE_URL)
+  restoreEnv('MISTRAL_MODEL', originalEnv.MISTRAL_MODEL)
+  mock.restore()
+})
+
+test('logs a warning when OPENAI_BASE_URL is literal undefined', async () => {
+  const debugSpy = mock(() => {})
+  mock.module('../../utils/debug.js', () => ({
+    logForDebugging: debugSpy,
+  }))
+
+  process.env.CLAUDE_CODE_USE_OPENAI = '1'
+  process.env.OPENAI_BASE_URL = 'undefined'
+  process.env.OPENAI_MODEL = 'gpt-4o'
+  delete process.env.OPENAI_API_BASE
+
+  const nonce = `${Date.now()}-${Math.random()}`
+  const { resolveProviderRequest } = await import(`./providerConfig.ts?ts=${nonce}`)
+
+  const resolved = resolveProviderRequest()
+
+  expect(resolved.baseUrl).toBe('https://api.openai.com/v1')
+
+  const warningCall = debugSpy.mock.calls.find(call =>
+    typeof call?.[0] === 'string' &&
+    call[0].includes('OPENAI_BASE_URL') &&
+    call[0].includes('"undefined"'),
+  )
+
+  expect(warningCall).toBeDefined()
+  expect(warningCall?.[1]).toEqual({ level: 'warn' })
+})
+
+test('does not warn for OPENAI_API_BASE when OPENAI_BASE_URL is active', async () => {
+  const debugSpy = mock(() => {})
+  mock.module('../../utils/debug.js', () => ({
+    logForDebugging: debugSpy,
+  }))
+
+  process.env.CLAUDE_CODE_USE_OPENAI = '1'
+  delete process.env.CLAUDE_CODE_USE_MISTRAL
+  process.env.OPENAI_BASE_URL = 'http://127.0.0.1:11434/v1'
+  process.env.OPENAI_MODEL = 'qwen2.5-coder:7b'
+  process.env.OPENAI_API_BASE = 'undefined'
+
+  const nonce = `${Date.now()}-${Math.random()}`
+  const { resolveProviderRequest } = await import(`./providerConfig.ts?ts=${nonce}`)
+
+  const resolved = resolveProviderRequest()
+
+  expect(resolved.baseUrl).toBe('http://127.0.0.1:11434/v1')
+
+  const aliasWarning = debugSpy.mock.calls.find(call =>
+    typeof call?.[0] === 'string' &&
+    call[0].includes('OPENAI_API_BASE') &&
+    call[0].includes('"undefined"'),
+  )
+
+  expect(aliasWarning).toBeUndefined()
+})
+
+test('uses OPENAI_API_BASE as fallback in mistral mode when MISTRAL_BASE_URL is unset', async () => {
+  const debugSpy = mock(() => {})
+  mock.module('../../utils/debug.js', () => ({
+    logForDebugging: debugSpy,
+  }))
+
+  delete process.env.CLAUDE_CODE_USE_OPENAI
+  process.env.CLAUDE_CODE_USE_MISTRAL = '1'
+  delete process.env.MISTRAL_BASE_URL
+  process.env.MISTRAL_MODEL = 'mistral-medium-latest'
+  process.env.OPENAI_API_BASE = 'http://127.0.0.1:11434/v1'
+
+  const nonce = `${Date.now()}-${Math.random()}`
+  const { resolveProviderRequest } = await import(`./providerConfig.ts?ts=${nonce}`)
+
+  const resolved = resolveProviderRequest()
+
+  expect(resolved.baseUrl).toBe('http://127.0.0.1:11434/v1')
+  expect(debugSpy.mock.calls).toHaveLength(0)
+})
diff --git a/src/services/api/providerConfig.ts b/src/services/api/providerConfig.ts
index 68c7e8fe..03ccdbce 100644
--- a/src/services/api/providerConfig.ts
+++ b/src/services/api/providerConfig.ts
@@ -8,6 +8,7 @@ import {
   readCodexCredentials,
   type CodexCredentialBlob,
 } from '../../utils/codexCredentials.js'
+import { logForDebugging } from '../../utils/debug.js'
 import { isEnvTruthy } from '../../utils/envUtils.js'
 import {
   asTrimmedString,
@@ -19,6 +20,7 @@ export const DEFAULT_CODEX_BASE_URL = 'https://chatgpt.com/backend-api/codex'
 export const DEFAULT_MISTRAL_BASE_URL = 'https://api.mistral.ai/v1'
 /** Default GitHub Copilot API model when user selects copilot / github:copilot */
 export const DEFAULT_GITHUB_MODELS_API_MODEL = 'gpt-4o'
+const warnedUndefinedEnvNames = new Set<string>()
 
 const CODEX_ALIAS_MODELS: Record<
   string,
@@ -129,7 +131,33 @@ function isPrivateIpv6Address(hostname: string): boolean {
 function asEnvUrl(value: string | undefined): string | undefined {
   if (!value) return undefined
   const trimmed = value.trim()
-  if (!trimmed || trimmed === 'undefined') return undefined
+  if (!trimmed) return undefined
+  if (trimmed === 'undefined') {
+    return undefined
+  }
+  return trimmed
+}
+
+function asNamedEnvUrl(
+  value: string | undefined,
+  envName: string,
+): string | undefined {
+  if (!value) return undefined
+
+  const trimmed = value.trim()
+  if (!trimmed) return undefined
+
+  if (trimmed === 'undefined') {
+    if (!warnedUndefinedEnvNames.has(envName)) {
+      warnedUndefinedEnvNames.add(envName)
+      logForDebugging(
+        `[provider-config] Environment variable ${envName} is the literal string "undefined"; ignoring it.`,
+        { level: 'warn' },
+      )
+    }
+    return undefined
+  }
+
   return trimmed
 }
 
@@ -362,14 +390,28 @@ export function resolveProviderRequest(options?: {
     (isGithubMode ? 'github:copilot' : 'gpt-4o')
   const descriptor = parseModelDescriptor(requestedModel)
   const explicitBaseUrl = asEnvUrl(options?.baseUrl)
+
+  const normalizedMistralEnvBaseUrl = asNamedEnvUrl(
+    process.env.MISTRAL_BASE_URL,
+    'MISTRAL_BASE_URL',
+  )
+
+  const primaryEnvBaseUrl = isMistralMode
+    ? normalizedMistralEnvBaseUrl
+    : asNamedEnvUrl(process.env.OPENAI_BASE_URL, 'OPENAI_BASE_URL')
+
+  const fallbackEnvBaseUrl = isMistralMode
+    ? (primaryEnvBaseUrl === undefined
+      ? asNamedEnvUrl(process.env.OPENAI_API_BASE, 'OPENAI_API_BASE') ?? DEFAULT_MISTRAL_BASE_URL
+      : undefined)
+    : (primaryEnvBaseUrl === undefined
+      ? asNamedEnvUrl(process.env.OPENAI_API_BASE, 'OPENAI_API_BASE')
+      : undefined)
+
   const envBaseUrlRaw =
     explicitBaseUrl ??
-    asEnvUrl(
-      isMistralMode
-        ? (process.env.MISTRAL_BASE_URL ?? DEFAULT_MISTRAL_BASE_URL)
-        : process.env.OPENAI_BASE_URL
-    ) ??
-    asEnvUrl(process.env.OPENAI_API_BASE)
+    primaryEnvBaseUrl ??
+    fallbackEnvBaseUrl
 
   const isCodexModelForGithub = isGithubMode && isCodexAlias(requestedModel)
   const envBaseUrl =