Does this mean the squid box has to be the overall gateway for the internal
network for transparrancy to work?

The reason the proposed setup the way it is is because AWS VPC  service has
a service based NAT gateway which we have not low level control over and it
is the default gateway. We want to only route http/https traffic over to
squid and the rest via their NAT gateway

Thanks in advance for the followup 

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