Backport request to 4.18.z of: https://issues.redhat.com/browse/OCPBUGS-48540
Seems this should be cherry picked all the way to 4.16.

Main PR: https://github.com/openshift/hypershift/pull/6011

QA verification from 4.19 nightly build:
Create a cluster with a proxy and a nodepool with update type inplace:

jiezhao-mac:hypershift jiezhao$ oc get hc -n clusters
NAME       VERSION                              KUBECONFIG                  PROGRESS    AVAILABLE   PROGRESSING   MESSAGE
jie-test   4.19.0-0.nightly-2025-04-14-214145   jie-test-admin-kubeconfig   Completed   True        False         The hosted control plane is available
jiezhao-mac:hypershift jiezhao$ 
jiezhao-mac:hypershift jiezhao$ cat new-np-inplace.yaml 
apiVersion: hypershift.openshift.io/v1beta1
kind: NodePool
metadata:
  creationTimestamp: null
  name: new-np-inplace
  namespace: clusters
spec:
  arch: amd64
  clusterName: jie-test
  management:
    autoRepair: false
    upgradeType: InPlace
  platform:
    aws:
      instanceProfile: jie-cluster-worker
      instanceType: m5.large
      rootVolume:
        size: 120
        type: gp3
      subnet:
        id: subnet-0dfcf6e1349efea43
    type: AWS
  release:
    image: registry.ci.openshift.org/ocp/release:4.19.0-0.nightly-2025-04-08-163320
  replicas: 2
status:
  replicas: 0

jiezhao-mac:hypershift jiezhao$ oc get np -n clusters
NAME             CLUSTER    DESIRED NODES   CURRENT NODES   AUTOSCALING   AUTOREPAIR   VERSION                              UPDATINGVERSION   UPDATINGCONFIG   MESSAGE
new-np-inplace   jie-test   2               2               False         False        4.19.0-0.nightly-2025-04-08-163320   False             False            
jiezhao-mac:hypershift jiezhao$ 
 


update nodepool:

jiezhao-mac:hypershift jiezhao$ oc patch --type=merge -n clusters np/new-np-inplace -p='{"spec":{"release":{"image": "registry.ci.openshift.org/ocp/release:4.19.0-0.nightly-2025-04-10-031621"}}}'
jiezhao-mac:hypershift jiezhao$ oc get np -n clusters
NAME             CLUSTER    DESIRED NODES   CURRENT NODES   AUTOSCALING   AUTOREPAIR   VERSION                              UPDATINGVERSION   UPDATINGCONFIG   MESSAGE
new-np-inplace   jie-test   2               2               False         False        4.19.0-0.nightly-2025-04-10-031621   False             False            
jiezhao-mac:hypershift jiezhao$ 
jiezhao-mac:hypershift jiezhao$ oc get node --kubeconfig=hostedcluster.kubeconfig
NAME                                         STATUS   ROLES    AGE   VERSION
ip-10-0-142-218.us-east-2.compute.internal   Ready    worker   20m   v1.32.3
ip-10-0-143-171.us-east-2.compute.internal   Ready    worker   21m   v1.32.3