diff --git a/cmd/compose/compose.go b/cmd/compose/compose.go
index 238acdd602..4adc460de1 100644
--- a/cmd/compose/compose.go
+++ b/cmd/compose/compose.go
@@ -477,7 +477,7 @@ func RootCommand(dockerCli command.Cli, backendOptions *BackendOptions) *cobra.C
 				logrus.SetLevel(logrus.TraceLevel)
 			}
 
-			err := setEnvWithDotEnv(opts)
+			err := setEnvWithDotEnv(opts, dockerCli)
 			if err != nil {
 				return err
 			}
@@ -677,7 +677,21 @@ func stdinfo(dockerCli command.Cli) io.Writer {
 	return dockerCli.Err()
 }
 
-func setEnvWithDotEnv(opts ProjectOptions) error {
+func setEnvWithDotEnv(opts ProjectOptions, dockerCli command.Cli) error {
+	// Check if we're using a remote config (OCI or Git)
+	// If so, skip env loading as remote loaders haven't been initialized yet
+	// and trying to process the path would fail
+	remoteLoaders := opts.remoteLoaders(dockerCli)
+	for _, path := range opts.ConfigPaths {
+		for _, loader := range remoteLoaders {
+			if loader.Accept(path) {
+				// Remote config - skip env loading for now
+				// It will be loaded later when the project is fully initialized
+				return nil
+			}
+		}
+	}
+
 	options, err := cli.NewProjectOptions(opts.ConfigPaths,
 		cli.WithWorkingDirectory(opts.ProjectDir),
 		cli.WithOsEnv,
diff --git a/cmd/compose/compose_oci_test.go b/cmd/compose/compose_oci_test.go
new file mode 100644
index 0000000000..7450f7633c
--- /dev/null
+++ b/cmd/compose/compose_oci_test.go
@@ -0,0 +1,76 @@
+/*
+   Copyright 2020 Docker Compose CLI authors
+
+   Licensed under the Apache License, Version 2.0 (the "License");
+   you may not use this file except in compliance with the License.
+   You may obtain a copy of the License at
+
+       http://www.apache.org/licenses/LICENSE-2.0
+
+   Unless required by applicable law or agreed to in writing, software
+   distributed under the License is distributed on an "AS IS" BASIS,
+   WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+   See the License for the specific language governing permissions and
+   limitations under the License.
+*/
+
+package compose
+
+import (
+	"testing"
+
+	"go.uber.org/mock/gomock"
+	"gotest.tools/v3/assert"
+
+	"github.com/docker/compose/v5/pkg/mocks"
+)
+
+func TestSetEnvWithDotEnv_WithOCIArtifact(t *testing.T) {
+	// Test that setEnvWithDotEnv doesn't fail when using OCI artifacts
+	ctrl := gomock.NewController(t)
+	defer ctrl.Finish()
+	cli := mocks.NewMockCli(ctrl)
+
+	opts := ProjectOptions{
+		ConfigPaths: []string{"oci://docker.io/dockersamples/welcome-to-docker"},
+		ProjectDir:  "",
+		EnvFiles:    []string{},
+	}
+
+	err := setEnvWithDotEnv(opts, cli)
+	assert.NilError(t, err, "setEnvWithDotEnv should not fail with OCI artifact path")
+}
+
+func TestSetEnvWithDotEnv_WithGitRemote(t *testing.T) {
+	// Test that setEnvWithDotEnv doesn't fail when using Git remotes
+	ctrl := gomock.NewController(t)
+	defer ctrl.Finish()
+	cli := mocks.NewMockCli(ctrl)
+
+	opts := ProjectOptions{
+		ConfigPaths: []string{"https://github.com/docker/compose.git"},
+		ProjectDir:  "",
+		EnvFiles:    []string{},
+	}
+
+	err := setEnvWithDotEnv(opts, cli)
+	assert.NilError(t, err, "setEnvWithDotEnv should not fail with Git remote path")
+}
+
+func TestSetEnvWithDotEnv_WithLocalPath(t *testing.T) {
+	// Test that setEnvWithDotEnv still works with local paths
+	// This will fail if the file doesn't exist, but it should not panic
+	// or produce invalid paths
+	ctrl := gomock.NewController(t)
+	defer ctrl.Finish()
+	cli := mocks.NewMockCli(ctrl)
+
+	opts := ProjectOptions{
+		ConfigPaths: []string{"compose.yaml"},
+		ProjectDir:  "",
+		EnvFiles:    []string{},
+	}
+
+	// This may error if files don't exist, but should not panic
+	_ = setEnvWithDotEnv(opts, cli)
+}