Iwobi was eligible to play for England until last week, but opted instead to represent Nigeria in an Africa Nations Cup qualifier against Egypt.
"Is he a loss for England? Yes. We have values in our club that are maybe not rated always, but one of them is to give a chance to young people and educate them," Wenger told reporters.
"Every year we bring players out and not many can say that. I'm happy Alex is one of them. He arrived here at the age of seven or eight. He's completely integrated in the way we want to play football. He's worked with us since the start of the season and it shows because when he came in he was used to the way we want to play.
"[Confidence is] one of his qualities. He's also very mobile and is a midfielder with creativity but is also a finisher. The quality of his receptions is very good because he gets into good spaces."
Arsenal's victory over Watford saw them close the gap on leaders Leicester City to eight points, with the Foxes not in action until Sunday.