Iplocation search command adds City and Country fields to your search results. It does this by looking up the IP addresses it finds using the hostip.info API. Check to see if this server has access to the internet. Unfortunately if your Splunk server doesn't have direct internet access then this script will fail.
The script itself is a very simple Python script that use the module urllib.urlopen to make the API call. To get it to use your proxy server is easy.
Make a backup of the original script:
$ cd $SPLUNK_HOME/etc/searchscripts
$ cp iplocation.py iplocation.py.bak
Edit iplocation.py and add the following line below the LOCATION_URL definition:
Keep in mind that any changes to build in search commands will be replaced on each and every upgrade. Also, the default location of this script as of 4.x is $SPLUNK_HOME/etc/apps/search/bin/iplocation.py no the seachscript location mentioned above.