diff --git a/src/commands/provider.ts b/src/commands/provider.ts
index 78080b769..4379dba78 100644
--- a/src/commands/provider.ts
+++ b/src/commands/provider.ts
@@ -85,14 +85,12 @@ const call: LocalCommandCall = async (args, context) => {
     applyConfigEnvironmentVariables()
     return { type: 'text', value: `API provider set to ${arg}.` }
   } else {
-    // Cloud providers: set env vars only, clear settings.modelType
+    // Cloud providers: set env vars only, do NOT touch settings.modelType
     delete process.env.CLAUDE_CODE_USE_OPENAI
     delete process.env.OPENAI_API_KEY
     delete process.env.OPENAI_BASE_URL
     process.env[getEnvVarForProvider(arg)] = '1'
-    // Clear settings.json to 'anthropic' to avoid validation errors
-    updateSettingsForSource('userSettings', { modelType: 'anthropic' })
-    // Ensure settings.env gets applied to process.env (in case it contains provider-specific creds)
+    // Do not modify settings.json - cloud providers controlled solely by env vars
     applyConfigEnvironmentVariables()
     return { type: 'text', value: `API provider set to ${arg} (via environment variable).` }
   }
diff --git a/src/utils/model/__tests__/providers.test.ts b/src/utils/model/__tests__/providers.test.ts
index b028f1084..afe9b126c 100644
--- a/src/utils/model/__tests__/providers.test.ts
+++ b/src/utils/model/__tests__/providers.test.ts
@@ -1,19 +1,57 @@
-import { describe, expect, test, beforeEach, afterEach } from "bun:test";
+import { describe, expect, test, beforeEach, afterEach, beforeAll, afterAll } from "bun:test";
 import { getAPIProvider, isFirstPartyAnthropicBaseUrl } from "../providers";
+import { readFileSync, writeFileSync } from "fs";
+import path from "path";
+import { fileURLToPath } from "url";
+import { homedir } from "os";
+
+const __filename = fileURLToPath(import.meta.url);
+const __dirname = path.dirname(__filename);
+
+function getSettingsPath(): string {
+  return path.join(homedir(), ".claude", "settings.json");
+}
 
 describe("getAPIProvider", () => {
   const envKeys = [
     "CLAUDE_CODE_USE_BEDROCK",
     "CLAUDE_CODE_USE_VERTEX",
     "CLAUDE_CODE_USE_FOUNDRY",
+    "CLAUDE_CODE_USE_OPENAI",
   ] as const;
   const savedEnv: Record<string, string | undefined> = {};
+  let originalSettings: string = "";
+
+  beforeAll(() => {
+    // Backup and clear settings.json modelType
+    const settingsPath = getSettingsPath();
+    try {
+      originalSettings = readFileSync(settingsPath, "utf-8");
+      const parsed = JSON.parse(originalSettings);
+      delete parsed.modelType;
+      writeFileSync(settingsPath, JSON.stringify(parsed, null, 2) + "\n");
+    } catch (e) {
+      // If file doesn't exist or can't parse, ignore
+    }
+  });
+
+  afterAll(() => {
+    // Restore original settings.json
+    if (originalSettings) {
+      writeFileSync(getSettingsPath(), originalSettings);
+    }
+  });
 
   beforeEach(() => {
-    for (const key of envKeys) savedEnv[key] = process.env[key];
+    // Save and clear environment variables
+    for (const key of envKeys) {
+      savedEnv[key] = process.env[key];
+      delete process.env[key];
+    }
   });
 
   afterEach(() => {
+    // Restore environment variables
     for (const key of envKeys) {
       if (savedEnv[key] !== undefined) {
         process.env[key] = savedEnv[key];
@@ -24,9 +62,6 @@ describe("getAPIProvider", () => {
   });
 
   test('returns "firstParty" by default', () => {
-    delete process.env.CLAUDE_CODE_USE_BEDROCK;
-    delete process.env.CLAUDE_CODE_USE_VERTEX;
-    delete process.env.CLAUDE_CODE_USE_FOUNDRY;
     expect(getAPIProvider()).toBe("firstParty");
   });
 
diff --git a/src/utils/model/providers.ts b/src/utils/model/providers.ts
index bce43ba92..09c14cfc4 100644
--- a/src/utils/model/providers.ts
+++ b/src/utils/model/providers.ts
@@ -5,23 +5,20 @@ import { isEnvTruthy } from '../envUtils.js'
 export type APIProvider = 'firstParty' | 'bedrock' | 'vertex' | 'foundry' | 'openai'
 
 export function getAPIProvider(): APIProvider {
-  // 1. Check settings.json modelType field (highest priority)
+  // Cloud provider env vars have highest priority (they are explicit switches)
+  if (isEnvTruthy(process.env.CLAUDE_CODE_USE_BEDROCK)) return 'bedrock'
+  if (isEnvTruthy(process.env.CLAUDE_CODE_USE_VERTEX)) return 'vertex'
+  if (isEnvTruthy(process.env.CLAUDE_CODE_USE_FOUNDRY)) return 'foundry'
+
+  // Check settings.json modelType field
   const modelType = getInitialSettings().modelType
   if (modelType === 'openai') return 'openai'
-  if (modelType === 'bedrock') return 'bedrock'
-  if (modelType === 'vertex') return 'vertex'
-  if (modelType === 'foundry') return 'foundry'
 
-  // 2. Check environment variables (backward compatibility)
-  return isEnvTruthy(process.env.CLAUDE_CODE_USE_OPENAI)
-    ? 'openai'
-    : isEnvTruthy(process.env.CLAUDE_CODE_USE_BEDROCK)
-      ? 'bedrock'
-      : isEnvTruthy(process.env.CLAUDE_CODE_USE_VERTEX)
-        ? 'vertex'
-        : isEnvTruthy(process.env.CLAUDE_CODE_USE_FOUNDRY)
-          ? 'foundry'
-          : 'firstParty'
+  // Backward compatibility: check legacy OpenAI env var
+  if (isEnvTruthy(process.env.CLAUDE_CODE_USE_OPENAI)) return 'openai'
+
+  // Default: Anthropic first-party API
+  return 'firstParty'
 }
 
 export function getAPIProviderForStatsig(): AnalyticsMetadata_I_VERIFIED_THIS_IS_NOT_CODE_OR_FILEPATHS {