Turning off telemetry quietly broke Claude Code's AGENTS.md feature

Turning off telemetry in Claude Code had an unexpected side effect: it silently stopped the tool from reading local instruction files.

Claude Code added support for AGENTS.md, a standard file that tells AI models how to work inside a repo. But an investigation by developer szypowi.cz revealed that the feature was gated behind a remote server flag. If you set DISABLE_TELEMETRY=1 or ran the CLI through Bedrock or Vertex, the network check failed. Claude Code then skipped the local file entirely without printing any warning.

Why it matters: Reading a text file from your own disk shouldn't require a call to a server. The bug hit privacy-conscious developers hardest: people who explicitly opted out of network tracking ended up with an AI that ignored their project instructions.

If you keep nonessential traffic turned off, the current workaround is to create a CLAUDE.md file containing @AGENTS.md. That import path bypasses the server flag and forces the CLI to read the file.

Privacy controls should quiet down telemetry, not silently turn off disk reads.