diff --git a/codex-rs/app-server/src/lib.rs b/codex-rs/app-server/src/lib.rs
index b0f5062389..423194b50c 100644
--- a/codex-rs/app-server/src/lib.rs
+++ b/codex-rs/app-server/src/lib.rs
@@ -82,6 +82,14 @@ use tracing_subscriber::util::SubscriberInitExt;
 
 const SQLITE_RECOVERY_CONFIG_WARNING_SUMMARY: &str = "Codex rebuilt its local database.";
 
+fn is_unsupported_untrusted_approval_policy_error(err: &std::io::Error) -> bool {
+    err.get_ref().is_some_and(
+        <dyn std::error::Error + Send + Sync + 'static>::is::<
+            UnsupportedUntrustedApprovalPolicyError,
+        >,
+    )
+}
+
 mod analytics_utils;
 mod app_info;
 mod app_server_tracing;
@@ -505,13 +513,7 @@ pub async fn run_main_with_transport_options(
                 config.http_client_factory(),
             );
         }
-        Err(err)
-            if err.get_ref().is_some_and(
-                <dyn std::error::Error + Send + Sync + 'static>::is::<
-                    UnsupportedUntrustedApprovalPolicyError,
-                >,
-            ) =>
-        {
+        Err(err) if is_unsupported_untrusted_approval_policy_error(&err) => {
             return Err(err);
         }
         Err(err) => {
@@ -526,6 +528,9 @@ pub async fn run_main_with_transport_options(
         .await
     {
         Ok(config) => config,
+        Err(err) if is_unsupported_untrusted_approval_policy_error(&err) => {
+            return Err(err);
+        }
         Err(err) => {
             if strict_config {
                 return Err(err);
diff --git a/codex-rs/shell-command/src/parse_command.rs b/codex-rs/shell-command/src/parse_command.rs
index 180e1c23c1..01768d0a7a 100644
--- a/codex-rs/shell-command/src/parse_command.rs
+++ b/codex-rs/shell-command/src/parse_command.rs
@@ -856,6 +856,34 @@ mod tests {
         )));
     }
 
+    #[test]
+    fn keeps_mutating_sed_in_compound_command() {
+        for sed_command in [
+            "sed -n -i.bak 1p secret.txt",
+            "sed -ni.bak 1p secret.txt",
+            "sed -Eni.bak 1p secret.txt",
+        ] {
+            let inner = format!("cat README.md && {sed_command}");
+            assert_parsed(
+                &vec_str(&["bash", "-lc", &inner]),
+                vec![ParsedCommand::Unknown { cmd: inner }],
+            );
+        }
+    }
+
+    #[test]
+    fn ignores_sed_operands_after_double_dash_when_checking_mutation() {
+        let inner = "cat README.md && sed 's/a/x/' -- -input.txt";
+        assert_parsed(
+            &vec_str(&["bash", "-lc", inner]),
+            vec![ParsedCommand::Read {
+                cmd: "cat README.md".to_string(),
+                name: "README.md".to_string(),
+                path: PathBuf::from("README.md"),
+            }],
+        );
+    }
+
     #[test]
     fn empty_tokens_is_not_small() {
         let empty: Vec<String> = Vec::new();
@@ -1560,7 +1588,8 @@ fn is_valid_sed_n_arg(arg: Option<&str>) -> bool {
 
 fn sed_read_path(args: &[String]) -> Option<String> {
     let args_no_connector = trim_at_connector(args);
-    if has_in_place_flag(&args_no_connector) || !args_no_connector.iter().any(|arg| arg == "-n") {
+    if sed_has_in_place_flag(&args_no_connector) || !args_no_connector.iter().any(|arg| arg == "-n")
+    {
         return None;
     }
     let mut has_range_script = false;
@@ -2158,8 +2187,10 @@ fn is_small_formatting_command(tokens: &[String]) -> bool {
         }
         "sed" => {
             // Keep `sed -n <range> file` (treated as a file read elsewhere);
-            // otherwise consider it a formatting helper in a pipeline.
-            sed_read_path(&tokens[1..]).is_none()
+            // keep in-place mutations as unknown actions; otherwise consider it
+            // a formatting helper in a pipeline.
+            let args = &tokens[1..];
+            !sed_has_in_place_flag(args) && sed_read_path(args).is_none()
         }
         _ => false,
     }
@@ -2200,7 +2231,8 @@ fn xargs_is_mutating_subcommand(tokens: &[String]) -> bool {
         return false;
     };
     match head.as_str() {
-        "perl" | "ruby" | "sed" => has_in_place_flag(tail),
+        "perl" | "ruby" => has_in_place_flag(tail),
+        "sed" => sed_has_in_place_flag(tail),
         "rg" => tail.iter().any(|token| token == "--replace"),
         _ => false,
     }
@@ -2217,6 +2249,39 @@ fn has_in_place_flag(tokens: &[String]) -> bool {
     })
 }
 
+fn sed_has_in_place_flag(tokens: &[String]) -> bool {
+    let mut tokens = tokens.iter();
+    while let Some(token) = tokens.next() {
+        match token.as_str() {
+            "--" => break,
+            "-e" | "-f" | "--expression" | "--file" => {
+                let _ = tokens.next();
+            }
+            "--in-place" => return true,
+            token if token.starts_with("--in-place=") => return true,
+            token if token.starts_with("--") => {}
+            token => {
+                let Some(short_options) = token.strip_prefix('-') else {
+                    continue;
+                };
+                for (index, option) in short_options.char_indices() {
+                    match option {
+                        'i' => return true,
+                        'e' | 'f' => {
+                            if index + option.len_utf8() == short_options.len() {
+                                let _ = tokens.next();
+                            }
+                            break;
+                        }
+                        _ => {}
+                    }
+                }
+            }
+        }
+    }
+    false
+}
+
 fn drop_small_formatting_commands(mut commands: Vec<Vec<String>>) -> Vec<Vec<String>> {
     commands.retain(|tokens| !is_small_formatting_command(tokens));
     commands