Don't assume that 'denial over' is a fixed collocation, it isn't, just translate the words separately. 'Over' here means 'about,' 'with regard to,' 'as regards,' 'regarding,' etc.
Their denial over X =
The fact that they seem to be living in a state of denial as far as X is concerned
You can use 'over' to mean 'about' with almost any emotional or psychological state. The syntax is not unlike saying 'Their happiness over her promotion,' 'Their confusion over the red tape,' 'Their depression over the layoffs,' etc.
The syntax is not the same as saying 'denial of'; that would be a specific act of denying a fact (= Leugnen). But in this sentence, 'denial' means the general emotional state of refusing to acknowledge reality.
The underlying phrase is simply 'to be in denial,' which describes that state, because in this case there isn't any corresponding adjective, unlike 'confused,' 'happy,' 'depressed,' etc.
There are several previous threads on 'in denial' in the archive, and there are bound to be hundreds of thousands of examples on the internet. If German speakers could just agree on a translation, this would be a very useful new entry. Just to make the meaning clear, I would suggest something like 'gewollte Ignoranz' or simply 'Verdrängung (der Tatsachen / eines Problems),' but those probably aren't very idiomatic.
But for 'over' here, surely just 'bezüglich' or 'was X betrifft' or 'gegenüber' or any number of other perfectly ordinary options are possible.