diff --git a/changelog/bugfixes/2024-01-24-update-proxy-setup.md b/changelog/bugfixes/2024-01-24-update-proxy-setup.md
new file mode 100644
index 0000000000..2d468c112f
--- /dev/null
+++ b/changelog/bugfixes/2024-01-24-update-proxy-setup.md
@@ -0,0 +1 @@
+- Forwarded the proxy environment variables of `update-engine.service` to the postinstall script to support fetching OEM systemd-sysext payloads through a proxy ([Flatcar#1326](https://github.com/flatcar/Flatcar/issues/1326))
diff --git a/sdk_container/src/third_party/coreos-overlay/coreos-base/update_engine/update_engine-9999.ebuild b/sdk_container/src/third_party/coreos-overlay/coreos-base/update_engine/update_engine-9999.ebuild
index 4da71ffbec..a6da6e1e04 100644
--- a/sdk_container/src/third_party/coreos-overlay/coreos-base/update_engine/update_engine-9999.ebuild
+++ b/sdk_container/src/third_party/coreos-overlay/coreos-base/update_engine/update_engine-9999.ebuild
@@ -8,7 +8,7 @@ CROS_WORKON_REPO="https://github.com"
 if [[ "${PV}" == 9999 ]]; then
 	KEYWORDS="~amd64 ~arm ~arm64 ~x86"
 else
-	CROS_WORKON_COMMIT="b86891bc510d139c102c6735e2c60c434c92dacd" # flatcar-3760-backport
+	CROS_WORKON_COMMIT="4638e1d302c938ff7fcd2b22bc4766f677018374" # flatcar-3760-backport
 	KEYWORDS="amd64 arm64"
 fi