It is not possible to disable pointer events for an absolutely positioned iframe and then selectively re-enable them (with respect to the parent layout flow) for child elements.
When the boxes share the same document, this is achievable. Pointer events for the blue box are not blocked by the layout in front of it.
With the absolutely positioned iframe, disabling pointer events allows them to pass to the blue box, but the button cannot capture its own and cannot be interacted with.