diff --git a/src/providers/inference/watsonx/provider.py b/src/providers/inference/watsonx/provider.py
index 5ba4c6a9d..811d6d4ed 100644
--- a/src/providers/inference/watsonx/provider.py
+++ b/src/providers/inference/watsonx/provider.py
@@ -5,6 +5,7 @@
 import asyncio
 from typing import TYPE_CHECKING, Any, Optional
 
+import httpx
 from openai import APIError
 from pydantic_ai.embeddings import EmbeddingModel
 from pydantic_ai.embeddings.openai import OpenAIEmbeddingModel
@@ -63,7 +64,7 @@ async def _discover_models(self) -> list[DiscoveredModel]:
                 ),
                 self._list_foundation_model_functions(),
             )
-        except APIError as exc:
+        except (APIError, httpx.HTTPStatusError) as exc:
             raise ModelDiscoveryError(self.provider_id) from exc
 
         discovered: list[DiscoveredModel] = []
diff --git a/tests/unit/providers/inference/watsonx/test_provider.py b/tests/unit/providers/inference/watsonx/test_provider.py
index 71367bc70..ba7c2fc13 100644
--- a/tests/unit/providers/inference/watsonx/test_provider.py
+++ b/tests/unit/providers/inference/watsonx/test_provider.py
@@ -128,8 +128,13 @@ async def test_discover_models_keeps_chat_and_embedding_only(
             ),
             body=None,
         ),
+        httpx.HTTPStatusError(
+            "IAM token exchange failed",
+            request=httpx.Request("POST", "https://iam.cloud.ibm.com/identity/token"),
+            response=httpx.Response(401),
+        ),
     ],
-    ids=["connection-error", "authentication-error"],
+    ids=["connection-error", "authentication-error", "iam-http-status-error"],
 )
 async def test_discover_models_wraps_api_error(
     provider: WatsonxInferenceProvider,