Relatives or not, this happens.
Some people are just rude and cold and selfish.
Even in school, kids can be like that.
So, it is a real lesson in life.
At 7 years old, he can learn this.
My daughter is 8, and since she was in Kindergarten, I have explained people and intentions to her. I don't keep her in a bubble.
She is, very socially wise for her age.
She has a cousin, that is like your Nephew. Oh well. My daughter KNOWS, that his is how her cousin is. She even said, she doesn't like that cousin, so she just does her own thing. She doesn't take it personally.
"Family"... is NOT always so nice and warm and fuzzy and supportive. When my daughter asks about her selfish/rude relatives and observes this as well, herself... I say "Yes, even relatives can be rude and not very thoughtful. Just because they are 'family' it does not mean, they are all loving. Just like friends. There are all kinds of people. So YOU have to be wise and know yourself." Which she does.
I also tell her that just because some people are like that, it is not the way 'we' are as a family. She knows, the difference.
You guide and teach your child... about people.
Sure, maybe your son and the nephew get along. But, he and his Mom (your Husband's Sister) is ALSO, very self-serving. You do know that.
So it is no surprise.
I mean, what kind of ADULT, waltzes up to another Parent and says "My son is sick of your son and doesn't want to hang out with you anymore, so we're leaving..." ???
So, you teach your son, about these things. He is 7.
So that, he has his own, sense of Self.
Not controlled by other rude people.
all the best,