Viktor Fayzulin's effort was the only difference between the sides with 12 minutes remaining and at that stage O'Neill was still harbouring hopes of a late smash and grab - a hope that disappeared when the referee awarded a spot-kick against Craig Cathcart. Roman Shirokov slotted the penalty into the bottom corner to seal a 2-0 victory.
"I felt at 1-0 we were well in the game and that the penalty - a very soft penalty - killed the game for us," O'Neill said. "I was very surprised by the decision. My initial reaction was that the referee had booked the striker for a theatrical fall."
He added: "There looked to be no contact whatsoever for the penalty but the pitch was very bad so maybe he lost his footing because of that. The referee was very fussy towards us throughout the night. The lads didn't deserve that, they deserved to stay in the game."
Despite defeat O'Neill believes his side showed all the core values he was looking for at the start of the new campaign. "Russia are a very strong team, we knew that from the analysis we did," he said. "The team is very similar to the team under Dick Advocaat and we knew they would cause us problems."
Russia coach Fabio Capello, taking charge of the side for just the second time, was pleased to have negotiated the fixture successfully. He admitted better performances will have to follow but was glad to register three points against opponents who were set-up for the draw on an uneven surface.
"It was difficult to find space today, with a lot of players around the goal. It was difficult to play a good game," said the former England boss.
"To play attractive football you need two good teams, here one team wanted to play long balls.
"It was also difficult because the pitch was not good and we could not play the ball properly. I am happy but I hope we play better some time. I'm sure we will get better."