diff --git a/backend/remote/backend_context.go b/backend/remote/backend_context.go
index 49286f977921..9461cb54a271 100644
--- a/backend/remote/backend_context.go
+++ b/backend/remote/backend_context.go
@@ -116,8 +116,10 @@ func (b *Remote) Context(op *backend.Operation) (*terraform.Context, statemgr.Fu
 				op.Variables = make(map[string]backend.UnparsedVariableValue)
 			}
 			for _, v := range tfeVariables.Items {
-				op.Variables[v.Key] = &remoteStoredVariableValue{
-					definition: v,
+				if v.Category == tfe.CategoryTerraform {
+					op.Variables[v.Key] = &remoteStoredVariableValue{
+						definition: v,
+					}
 				}
 			}
 		}
diff --git a/backend/remote/backend_context_test.go b/backend/remote/backend_context_test.go
index d178e8c1c03d..03de0f427ebd 100644
--- a/backend/remote/backend_context_test.go
+++ b/backend/remote/backend_context_test.go
@@ -4,7 +4,9 @@ import (
 	"testing"
 
 	tfe "github.com/hashicorp/go-tfe"
+	"github.com/hashicorp/terraform/backend"
 	"github.com/hashicorp/terraform/configs"
+	"github.com/hashicorp/terraform/internal/initwd"
 	"github.com/zclconf/go-cty/cty"
 )
 
@@ -141,3 +143,72 @@ func TestRemoteStoredVariableValue(t *testing.T) {
 		})
 	}
 }
+
+func TestRemoteContextWithVars(t *testing.T) {
+	catTerraform := tfe.CategoryTerraform
+	catEnv := tfe.CategoryEnv
+
+	tests := map[string]struct {
+		Opts      *tfe.VariableCreateOptions
+		WantError string
+	}{
+		"Terraform variable": {
+			&tfe.VariableCreateOptions{
+				Category: &catTerraform,
+			},
+			`Value for undeclared variable: A variable named "key" was assigned a value, but the root module does not declare a variable of that name. To use this value, add a "variable" block to the configuration.`,
+		},
+		"environment variable": {
+			&tfe.VariableCreateOptions{
+				Category: &catEnv,
+			},
+			``,
+		},
+	}
+
+	for name, test := range tests {
+		t.Run(name, func(t *testing.T) {
+			configDir := "./testdata/empty"
+
+			b, bCleanup := testBackendDefault(t)
+			defer bCleanup()
+
+			_, configLoader, configCleanup := initwd.MustLoadConfigForTests(t, configDir)
+			defer configCleanup()
+
+			op := &backend.Operation{
+				ConfigDir:    configDir,
+				ConfigLoader: configLoader,
+				Workspace:    backend.DefaultStateName,
+			}
+
+			v := test.Opts
+			if v.Key == nil {
+				key := "key"
+				v.Key = &key
+			}
+			if v.Workspace == nil {
+				v.Workspace = &tfe.Workspace{
+					Name: b.workspace,
+				}
+			}
+			b.client.Variables.Create(nil, *v)
+
+			_, _, diags := b.Context(op)
+
+			if test.WantError != "" {
+				if !diags.HasErrors() {
+					t.Fatalf("missing expected error\ngot:  <no error>\nwant: %s", test.WantError)
+				}
+				errStr := diags.Err().Error()
+				if errStr != test.WantError {
+					t.Fatalf("wrong error\ngot:  %s\nwant: %s", errStr, test.WantError)
+				}
+			} else {
+				if diags.HasErrors() {
+					t.Fatalf("unexpected error\ngot:  %s\nwant: <no error>", diags.Err().Error())
+				}
+			}
+		})
+	}
+}
diff --git a/backend/remote/backend_mock.go b/backend/remote/backend_mock.go
index d337d976e699..42b51fd2600f 100644
--- a/backend/remote/backend_mock.go
+++ b/backend/remote/backend_mock.go
@@ -27,6 +27,7 @@ type mockClient struct {
 	PolicyChecks          *mockPolicyChecks
 	Runs                  *mockRuns
 	StateVersions         *mockStateVersions
+	Variables             *mockVariables
 	Workspaces            *mockWorkspaces
 }
 
@@ -40,6 +41,7 @@ func newMockClient() *mockClient {
 	c.PolicyChecks = newMockPolicyChecks(c)
 	c.Runs = newMockRuns(c)
 	c.StateVersions = newMockStateVersions(c)
+	c.Variables = newMockVariables(c)
 	c.Workspaces = newMockWorkspaces(c)
 	return c
 }
@@ -945,6 +947,63 @@ func (m *mockStateVersions) Download(ctx context.Context, url string) ([]byte, e
 	return state, nil
 }
 
+type mockVariables struct {
+	client     *mockClient
+	workspaces map[string]*tfe.VariableList
+}
+
+func newMockVariables(client *mockClient) *mockVariables {
+	return &mockVariables{
+		client:     client,
+		workspaces: make(map[string]*tfe.VariableList),
+	}
+}
+
+func (m *mockVariables) List(ctx context.Context, options tfe.VariableListOptions) (*tfe.VariableList, error) {
+	vl := m.workspaces[*options.Workspace]
+	return vl, nil
+}
+
+func (m *mockVariables) Create(ctx context.Context, options tfe.VariableCreateOptions) (*tfe.Variable, error) {
+	v := &tfe.Variable{
+		ID:       generateID("var-"),
+		Key:      *options.Key,
+		Category: *options.Category,
+	}
+	if options.Value != nil {
+		v.Value = *options.Value
+	}
+	if options.HCL != nil {
+		v.HCL = *options.HCL
+	}
+	if options.Sensitive != nil {
+		v.Sensitive = *options.Sensitive
+	}
+
+	workspace := options.Workspace.Name
+
+	if m.workspaces[workspace] == nil {
+		m.workspaces[workspace] = &tfe.VariableList{}
+	}
+
+	vl := m.workspaces[workspace]
+	vl.Items = append(vl.Items, v)
+
+	return v, nil
+}
+
+func (m *mockVariables) Read(ctx context.Context, variableID string) (*tfe.Variable, error) {
+	panic("not implemented")
+}
+
+func (m *mockVariables) Update(ctx context.Context, variableID string, options tfe.VariableUpdateOptions) (*tfe.Variable, error) {
+	panic("not implemented")
+}
+
+func (m *mockVariables) Delete(ctx context.Context, variableID string) error {
+	panic("not implemented")
+}
+
 type mockWorkspaces struct {
 	client         *mockClient
 	workspaceIDs   map[string]*tfe.Workspace
diff --git a/backend/remote/testing.go b/backend/remote/testing.go
index d7706fe190c1..e506f28f9bee 100644
--- a/backend/remote/testing.go
+++ b/backend/remote/testing.go
@@ -10,7 +10,7 @@ import (
 	"testing"
 
 	tfe "github.com/hashicorp/go-tfe"
-	"github.com/hashicorp/terraform-svchost"
+	svchost "github.com/hashicorp/terraform-svchost"
 	"github.com/hashicorp/terraform-svchost/auth"
 	"github.com/hashicorp/terraform-svchost/disco"
 	"github.com/hashicorp/terraform/backend"
@@ -123,6 +123,7 @@ func testBackend(t *testing.T, obj cty.Value) (*Remote, func()) {
 	b.client.PolicyChecks = mc.PolicyChecks
 	b.client.Runs = mc.Runs
 	b.client.StateVersions = mc.StateVersions
+	b.client.Variables = mc.Variables
 	b.client.Workspaces = mc.Workspaces
 
 	b.ShowDiagnostics = func(vals ...interface{}) {