You should not need the full Linux file structure if just booting an ISO.
I have installed grub to flash drive with various formats and booted ISO on that same flash drive. Not sure exact grub boot stanza required for network boot.
I had an old USB2 flash drive which I reformated.
I first make it gpt, as I prefer that over the now 40 year old MBR partitioning.
You can use gparted which I normally do. Select gpt under device, advanced over msdos(MBR) default partitioning before starting. or use parted or gdisk. Note: This totally erases drive. The sdX, is your flash drive.
sudo parted /dev/sdX mklabel gpt
I then used gparted to create on large FAT32 partition. I had to reboot for it to be seen correctly & file browser does not auto mount ESP partitions, so used Disks or manually mount.
Model: Kingston DataTraveler 2.0 (scsi)
Disk /dev/sdc: 1998MB
Sector size (logical/physical): 512B/512B
Partition Table: gpt
Number Start End Size File system Name Flags
1 1049kB 1998MB 1996MB fat32 esp2 msftdata
I then mounted it with disks and then it was in /media/fred:
/dev/sdc1 on /media/fred/FC87-F75C type vfat (rw,nosuid,nodev,relatime,uid=1000,gid=1000,fmask=0022,dmask=0022,codepage=437,iocharset=iso8859-1,shortname=mixed,showexec,utf8,flush,errors=remount-ro,uhelper=udisks2)
Then installed grub. My drive was seen as sdc. Was a bit slow as old USB2 flash drive.
sudo grub-install --root-directory=/media/fred/FC87-F75C /dev/sdc
It created structure and the normal /EFI/ubuntu/grub.cfg that is a 3 line configfile to full grub in /boot/grub/grub.cfg.
But did not create any /boot/grub/grub.cfg boot file. I normally manually created one to boot local ISO using these references & my older notes. You will have to create a grub.cfg but with path & mount? to network.
ISO boot & link to examples
Network grub info I found using google. nfs will not work, but has example for net boot.
Set up nfsroot for GRUB PXE
How to boot linux kernel from network through GRUB2 console?