The midfielder was left bitterly disappointed with his side's muted display as it fell to a shock loss on Wednesday night
Goals from Kevin-Prince Boateng and Sulley Muntari stunned the visitors and means the Catalans now have a mountain to climb ahead of the second leg at Camp Nou.
"This was a very negative result. When you don't show up for a game, this can happen," Iniesta told reporters after the game.
Defender Dani Alves was left equally disappointed with the result and suggested the Blaugrana had not shown enough fight at San Siro.
"We could have competed better," he added. "The Champions League is a big competition, you don't get anything for free and you have to fight for it."
Controversy surrounded the first goal, with a shot from Riccardo Montolivo appearing to strike the hand of Cristian Zapata, before Boateng fired home from the rebound and Gerard Pique was unhappy with what he felt was a clear infringement.
"For me it was totally clear, but apparently the referee didn't see it."
Barca will have the opportunity to make amends for a disastrous evening when it hosts the Rossoneri in the second leg at Camp Nou on March 12.