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Istio is point to point between services. It's not a boundary in the sense you're thinking.

I will admit I don't know a lot about Kubernets at all, but as I see the Istio is supposed to be the proxy layer between services ?

Being able to run as the Istio user (1337) renders the proxy itself moot right ?

There are a lot of other ways to bypass the Istio sidecar proxy, which is not designed to be a general egress boundary/firewall. See https://blog.howardjohn.info/posts/bypass-egress/