How to upgrade rhel 7.3 to 8.1 using iso cd

I wish to upgrade Rhel 7.3 to 8.1 by using an iso cd. I mount it to /home/cdrom This iso contains the following directories: BaseOS AppStream RPM-GPG-KEY-redhat-release, and so on

I got one repo file called /etc/yum.repos.d/rhel8.repo. This contains:

[rhel8-Server]
mediaid=78347539434.4444
name=RHEL8-Server
baseurl=file:///home/cdrom/AppStream
gpgkey=file:///home/cdrom/RPM-GPG-KEY-redhat-release
enabled=1
gpgcheck=1

Then I executed yum update but it didn't work. I also tried with baseurl=file:///home/cdrom/BaseOS but there's no results. I got result messages such like 'You could try using --skip-broken to work around the problem' or 'Error: Invalid version flag: if'. What can I do?

To keep a RedHat System which is disconnected up-to-date, you have to respect the way how RHEL will be supported.

To update the systems, which being disconnected, please follow the MANUAL of RedHat

Update an Offline System

Follow this Guide from the Vendor
https://access.redhat.com/solutions/29269

Upgrade an Offline System

To Offline Upgrade to RHEL 8, it's only accessible by Subscription Owners, besides i dont own RHEL so, I don't own that, but I think this will solve your issue

https://access.redhat.com/solutions/5492401

Remind, RHEL will need to have a valid Subscription to being used.

As Michael mentioned in early comment, your are trying to perform an upgrade with the wrong process.

Firstly we have to be clear about update and upgrade.

Update

Sometimes called a software patch, an update is an addition to the current version of the application, operating system, or software that you are running. A software update addresses any issues or bugs to provide a better experience of working with the technology. In RHEL, an update relates to a minor release, for example, updating from RHEL 8.1 to 8.2.

Upgrade

An upgrade is when you replace the application, operating system, or software that you are currently running with a newer version. Typically, you first back up your data according to instructions from Red Hat. When you upgrade RHEL, you have two options:

In-place upgrade: During an in-place upgrade, you replace the earlier version with the new version without removing the earlier version first. The installed applications and utilities, along with the configurations and preferences, are incorporated into the new version.

Clean install: A clean install removes all traces of the previously installed operating system, system data, configurations, and applications and installs the latest version of the operating system. A clean install is ideal if you do not need any of the previous data or applications on your systems or if you are developing a new project that does not rely on prior builds.

As you are trying to move from version 7 to version 8 you need an upgrade.

In this point I would like to share with you the next video from Red Hat channel in youtube, this video shows you the In-Place Upgrade using Leapp.

Let me know if this resolve your concerns,