This connection will probably require going from Terminal 4S (the satellite terminal where international arrivals and customs are) to T4. That involves several flights on an escalator and a train ride (but the trains come very frequently). I have made similar connection times, and I have missed a flight with similar connection times. When I missed my flight, the Iberia personnel were terrific -- they pulled our luggage and got us on a Vueling flight out of T2, (yes it was hectic, but we made it!) so that we wound up just being about an hour later than our original reservation. This was a flight to Lisbon, so there may have been more choices than Madrid to Santiago.
I am assuming this is all one ticket, and if it is, Iberia will be the ones to have to fix the problem if your friends miss their connection. But your friends should have a list of all the next flights from Madrid to Santiago, including airlines other than Iberia, so that they can see what the options are when they actually arrive. You are right, they may make it fine. If they are going to miss the connection, there will be an Iberia agent greeting them at the arrival gate with the new information on the next flight. But knowing what is available is going to give them the knowledge they need to know whether Iberia's offer to re-route is the best that can be done. Iberia will have a financial incentive to keep the passengers on an Iberia plane, but if you know there is, say, an Easy Jet flight leaving sooner, it would be worth it to try to get them to move you to that flight.