diff --git a/cmd/clusterctl/client/config.go b/cmd/clusterctl/client/config.go
index ef3ba4d9b9c7..4873866ee2d3 100644
--- a/cmd/clusterctl/client/config.go
+++ b/cmd/clusterctl/client/config.go
@@ -49,7 +49,7 @@ func (c *clusterctlClient) GetProviderComponents(provider string, providerType c
 		Version:           options.Version,
 		TargetNamespace:   options.TargetNamespace,
 		WatchingNamespace: options.WatchingNamespace,
-		SkipVariables:     true,
+		SkipVariables:     options.SkipVariables,
 	}
 	components, err := c.getComponentsByName(provider, providerType, inputOptions)
 	if err != nil {
diff --git a/cmd/clusterctl/client/config_test.go b/cmd/clusterctl/client/config_test.go
index 228bc92129da..212fe0be1a86 100644
--- a/cmd/clusterctl/client/config_test.go
+++ b/cmd/clusterctl/client/config_test.go
@@ -204,6 +204,7 @@ func Test_getComponentsByName_withEmptyVariables(t *testing.T) {
 	options := ComponentsOptions{
 		TargetNamespace:   "ns1",
 		WatchingNamespace: "",
+		SkipVariables:     true,
 	}
 	components, err := client.GetProviderComponents(repository1Config.Name(), repository1Config.Type(), options)
 	g.Expect(err).NotTo(HaveOccurred())
diff --git a/cmd/clusterctl/client/repository/components.go b/cmd/clusterctl/client/repository/components.go
index 189036db92dc..b7d5a565f97f 100644
--- a/cmd/clusterctl/client/repository/components.go
+++ b/cmd/clusterctl/client/repository/components.go
@@ -196,14 +196,10 @@ func NewComponents(provider config.Provider, configClient config.Client, rawyaml
 	// Inspect the yaml read from the repository for variables.
 	variables := inspectVariables(rawyaml)
 
-	yaml := rawyaml
-	var err error
-	if !options.SkipVariables {
-		// Replace variables with corresponding values read from the config
-		yaml, err = replaceVariables(rawyaml, variables, configClient.Variables())
-		if err != nil {
-			return nil, errors.Wrap(err, "failed to perform variable substitution")
-		}
+	// Replace variables with corresponding values read from the config
+	yaml, err := replaceVariables(rawyaml, variables, configClient.Variables(), options.SkipVariables)
+	if err != nil {
+		return nil, errors.Wrap(err, "failed to perform variable substitution")
 	}
 
 	// Transform the yaml in a list of objects, so following transformation can work on typed objects (instead of working on a string/slice of bytes)
@@ -351,7 +347,7 @@ func inspectVariables(data []byte) []string {
 	return ret
 }
 
-func replaceVariables(yaml []byte, variables []string, configVariablesClient config.VariablesClient) ([]byte, error) {
+func replaceVariables(yaml []byte, variables []string, configVariablesClient config.VariablesClient, skipVariables bool) ([]byte, error) {
 	tmp := string(yaml)
 	var missingVariables []string
 	for _, key := range variables {
@@ -363,7 +359,7 @@ func replaceVariables(yaml []byte, variables []string, configVariablesClient con
 		exp := regexp.MustCompile(`\$\{\s*` + regexp.QuoteMeta(key) + `\s*\}`)
 		tmp = exp.ReplaceAllLiteralString(tmp, val)
 	}
-	if len(missingVariables) > 0 {
+	if !skipVariables && len(missingVariables) > 0 {
 		return nil, errors.Errorf("value for variables [%s] is not set. Please set the value using os environment variables or the clusterctl config file", strings.Join(missingVariables, ", "))
 	}
 
diff --git a/cmd/clusterctl/client/repository/components_test.go b/cmd/clusterctl/client/repository/components_test.go
index c0345cb47203..44fb5268fc3a 100644
--- a/cmd/clusterctl/client/repository/components_test.go
+++ b/cmd/clusterctl/client/repository/components_test.go
@@ -74,6 +74,7 @@ func Test_replaceVariables(t *testing.T) {
 		yaml                  []byte
 		variables             []string
 		configVariablesClient config.VariablesClient
+		skipVariables         bool
 	}
 	tests := []struct {
 		name    string
@@ -88,6 +89,7 @@ func Test_replaceVariables(t *testing.T) {
 				variables: []string{"BAR"},
 				configVariablesClient: test.NewFakeVariableClient().
 					WithVar("BAR", "bar"),
+				skipVariables: false,
 			},
 			want:    []byte("foo bar"),
 			wantErr: false,
@@ -99,6 +101,7 @@ func Test_replaceVariables(t *testing.T) {
 				variables: []string{"BA$R"},
 				configVariablesClient: test.NewFakeVariableClient().
 					WithVar("BA$R", "bar"),
+				skipVariables: false,
 			},
 			want:    []byte("foo bar"),
 			wantErr: false,
@@ -110,26 +113,40 @@ func Test_replaceVariables(t *testing.T) {
 				variables: []string{"BAR"},
 				configVariablesClient: test.NewFakeVariableClient().
 					WithVar("BAR", "ba$r"),
+				skipVariables: false,
 			},
 			want:    []byte("foo ba$r"),
 			wantErr: false,
 		},
 		{
-			name: "fails for missing variables",
+			name: "fails for missing variables and not skip variables",
 			args: args{
 				yaml:                  []byte("foo ${ BAR } ${ BAZ }"),
 				variables:             []string{"BAR", "BAZ"},
 				configVariablesClient: test.NewFakeVariableClient(),
+				skipVariables:         false,
 			},
 			want:    nil,
 			wantErr: true,
 		},
+		{
+			name: "pass when missing variables and skip variables",
+			args: args{
+				yaml:      []byte("foo ${ BAR } ${ BAZ }"),
+				variables: []string{"BAR", "BAZ"},
+				configVariablesClient: test.NewFakeVariableClient().
+					WithVar("BAR", "bar"),
+				skipVariables: true,
+			},
+			want:    []byte("foo bar ${ BAZ }"),
+			wantErr: false,
+		},
 	}
 	for _, tt := range tests {
 		t.Run(tt.name, func(t *testing.T) {
 			g := NewWithT(t)
 
-			got, err := replaceVariables(tt.args.yaml, tt.args.variables, tt.args.configVariablesClient)
+			got, err := replaceVariables(tt.args.yaml, tt.args.variables, tt.args.configVariablesClient, tt.args.skipVariables)
 			if tt.wantErr {
 				g.Expect(err).To(HaveOccurred())
 				return
diff --git a/cmd/clusterctl/client/repository/template.go b/cmd/clusterctl/client/repository/template.go
index f3c7f27c8b1f..08d08f49d265 100644
--- a/cmd/clusterctl/client/repository/template.go
+++ b/cmd/clusterctl/client/repository/template.go
@@ -80,7 +80,7 @@ func NewTemplate(rawYaml []byte, configVariablesClient config.VariablesClient, t
 		}, nil
 	}
 
-	yaml, err := replaceVariables(rawYaml, variables, configVariablesClient)
+	yaml, err := replaceVariables(rawYaml, variables, configVariablesClient, false)
 	if err != nil {
 		return nil, errors.Wrap(err, "failed to perform variable substitution")
 	}
diff --git a/cmd/clusterctl/cmd/config_provider.go b/cmd/clusterctl/cmd/config_provider.go
index 8f84cf260ffd..ec12312c5eac 100644
--- a/cmd/clusterctl/cmd/config_provider.go
+++ b/cmd/clusterctl/cmd/config_provider.go
@@ -139,6 +139,7 @@ func runGetComponents() error {
 	options := client.ComponentsOptions{
 		TargetNamespace:   cpo.targetNamespace,
 		WatchingNamespace: cpo.watchingNamespace,
+		SkipVariables:     true,
 	}
 	components, err := c.GetProviderComponents(providerName, providerType, options)
 	if err != nil {