The hypershift operator ignores RegistryOverrides (from ICSP/IDMS) inspecting the control-plane-operator-image so on disconnected cluster the user should explicitly set hypershift.openshift.io/control-plane-operator-image annotation pointing to the mirrored image on the internal registry.

Example:
the correct match is in the IDMS:
# oc get imagedigestmirrorset -oyaml | grep -B2 registry.ci.openshift.org/ocp/4.14-2024-02-14-135111
 ...
    - mirrors:
      - virthost.ostest.test.metalkube.org:5000/localimages/local-release-image
      source: registry.ci.openshift.org/ocp/4.14-2024-02-14-135111

Creating an hosted cluster with:
hcp create cluster kubevirt --image-content-sources /home/mgmt_iscp.yaml  --additional-trust-bundle /etc/pki/ca-trust/source/anchors/registry.2.crt --name simone3 --node-pool-replicas 2 --memory 16Gi --cores 4 --root-volume-size 64 --namespace local-cluster --release-image virthost.ostest.test.metalkube.org:5000/localimages/local-release-image@sha256:66c6a46013cda0ad4e2291be3da432fdd03b4a47bf13067e0c7b91fb79eb4539 --pull-secret /tmp/.dockerconfigjson --generate-ssh

on the hostedCluster object we see:
status:
  conditions:
  - lastTransitionTime: "2024-02-14T22:01:30Z"
    message: 'failed to look up image metadata for registry.ci.openshift.org/ocp/4.14-2024-02-14-135111@sha256:84c74cc05250d0e51fe115274cc67ffcf0a4ac86c831b7fea97e484e646072a6:
      failed to obtain root manifest for registry.ci.openshift.org/ocp/4.14-2024-02-14-135111@sha256:84c74cc05250d0e51fe115274cc67ffcf0a4ac86c831b7fea97e484e646072a6:
      unauthorized: authentication required'
    observedGeneration: 3
    reason: ReconciliationError
    status: "False"
    type: ReconciliationSucceeded


and in the logs of the hypershift operator:
{"level":"info","ts":"2024-02-14T22:18:11Z","msg":"registry override coincidence not found","controller":"hostedcluster","controllerGroup":"hypershift.openshift.io","controllerKind":"HostedCluster","HostedCluster":{"name":"simone3","namespace":"local-cluster"},"namespace":"local-cluster","name":"simone3","reconcileID":"6d6a2479-3d54-42e3-9204-8d0ab1013745","image":"4.14-2024-02-14-135111"}
{"level":"error","ts":"2024-02-14T22:18:12Z","msg":"Reconciler error","controller":"hostedcluster","controllerGroup":"hypershift.openshift.io","controllerKind":"HostedCluster","HostedCluster":{"name":"simone3","namespace":"local-cluster"},"namespace":"local-cluster","name":"simone3","reconcileID":"6d6a2479-3d54-42e3-9204-8d0ab1013745","error":"failed to look up image metadata for registry.ci.openshift.org/ocp/4.14-2024-02-14-135111@sha256:84c74cc05250d0e51fe115274cc67ffcf0a4ac86c831b7fea97e484e646072a6: failed to obtain root manifest for registry.ci.openshift.org/ocp/4.14-2024-02-14-135111@sha256:84c74cc05250d0e51fe115274cc67ffcf0a4ac86c831b7fea97e484e646072a6: unauthorized: authentication required","stacktrace":"sigs.k8s.io/controller-runtime/pkg/internal/controller.(*Controller).reconcileHandler\n\t/remote-source/app/vendor/sigs.k8s.io/controller-runtime/pkg/internal/controller/controller.go:326\nsigs.k8s.io/controller-runtime/pkg/internal/controller.(*Controller).processNextWorkItem\n\t/remote-source/app/vendor/sigs.k8s.io/controller-runtime/pkg/internal/controller/controller.go:273\nsigs.k8s.io/controller-runtime/pkg/internal/controller.(*Controller).Start.func2.2\n\t/remote-source/app/vendor/sigs.k8s.io/controller-runtime/pkg/internal/controller/controller.go:234"}


so the hypershift-operator is not using the RegistryOverrides mechanism to inspect the image from the internal registry (virthost.ostest.test.metalkube.org:5000/localimages/local-release-image in this example).

Explicitly setting annotation:
hypershift.openshift.io/control-plane-operator-image: virthost.ostest.test.metalkube.org:5000/localimages/local-release-image@sha256:84c74cc05250d0e51fe115274cc67ffcf0a4ac86c831b7fea97e484e646072a6
on the hosted-cluster directly pointing to the mirrored control-plane-operator image is required to proceed on disconnected environments.

    4.14, 4.15, 4.16

    100%

    1. try to deploy an hostedCluster on a disconnected environment without explicitly set hypershift.openshift.io/control-plane-operator-image annotation.
    2.
    3.
    

    A reconciliation error reported on the hostedCluster object:
status:
  conditions:
  - lastTransitionTime: "2024-02-14T22:01:30Z"
    message: 'failed to look up image metadata for registry.ci.openshift.org/ocp/4.14-2024-02-14-135111@sha256:84c74cc05250d0e51fe115274cc67ffcf0a4ac86c831b7fea97e484e646072a6:
      failed to obtain root manifest for registry.ci.openshift.org/ocp/4.14-2024-02-14-135111@sha256:84c74cc05250d0e51fe115274cc67ffcf0a4ac86c831b7fea97e484e646072a6:
      unauthorized: authentication required'
    observedGeneration: 3
    reason: ReconciliationError
    status: "False"
    type: ReconciliationSucceeded

The hostedCluster is not spawn.

    The hypershift operator uses the RegistryOverrides mechanism also for the control-plane-operator image.
    Explicitly setting hypershift.openshift.io/control-plane-operator-image annotation is not required.

    - Maybe related to OCPBUGS-29110
    - Explicitly setting hypershift.openshift.io/control-plane-operator-image annotation pointing to the mirrored image on the internal registry is a valid workaround.