Project-local MCP servers (url/streamable HTTP) don't trigger OAuth browser flow

Summary

Project-local MCP servers configured in .claude/settings.json with the url field (streamable HTTP transport) that require OAuth/SSO browser authentication silently fail to connect. No browser window is opened for authentication, and the servers don't appear in the /mcp dialog.

Environment

• Claude Code Version: 2.1.97
• Platform: macOS (Darwin 24.5.0)
• Shell: zsh

Configuration

.claude/settings.json (project-level):

{
  "mcpServers": {
    "my-server": {
      "url": "https://my-corp-server.example.com/mcp"
    }
  }
}

The servers are corporate internal MCP servers that require browser-based SSO authentication (OAuth flow). They are reachable — curl returns 401 (auth required) and 406 responses.

Expected Behavior

When Claude Code connects to a url-based MCP server and receives a 401 with OAuth metadata:

1. Claude Code should open the default browser for SSO authentication
2. After auth completes, tokens should be stored and reused
3. The servers should appear in the /mcp dialog alongside plugin-based MCPs
4. Token refresh should happen automatically

This is how Cursor handles the same MCP servers — it opens a browser, the user authenticates once via SSO, and the session stays active.

Actual Behavior

• No browser window opens for authentication
• No OAuth tokens are stored (~/.claude/ has no credentials/oauth files for these servers)
• The servers silently fail to connect — no error is shown to the user
• The /mcp dialog only shows plugin-based MCPs, not project-local ones
• No tools from these servers are available during the session

Key Observations

• Plugin-based MCPs (e.g., github@claude-plugins-official) DO have an authenticate tool that triggers the OAuth flow correctly
• Project-local url MCPs don't get the same treatment — no auth flow is triggered
• The same servers work perfectly in Cursor with browser-based SSO
• There is no visible error or log output indicating the connection failure

Workaround

Manually obtain a bearer token and add it via headers:

{
  "mcpServers": {
    "my-server": {
      "url": "https://my-corp-server.example.com/mcp",
      "headers": {
        "Authorization": "Bearer <manually-obtained-token>"
      }
    }
  }
}

This is impractical for SSO tokens that expire frequently.

Requested Improvements

1. Trigger OAuth browser flow for project-local url MCP servers that return 401, matching Cursor's behavior
2. Show project-local servers in /mcp dialog so users can see connection status and manually trigger auth
3. Surface connection errors instead of silently failing — at minimum log a warning