U.S. Treasury Secretary Janet Yellen said Thursday that sanctions were hurting Russia, as she and other G-7 finance chiefs discussed further measures on the eve of the first anniversary of the Ukraine invasion.

"The way I see it, our sanctions have significantly negatively affected Russia. While by some measures the Russian economy has held up better than might initially have been expected, Russia is now running a significant budget deficit," Yellen said in India.

Export controls were making it "extremely difficult" for Moscow to replenish its munitions, including repairing 9,000 tanks destroyed in the war, Yellen told reporters in Bengaluru.

"We see that it has led to an exodus of some of the most qualified scientists and entrepreneurs in the Russian economy and an exodus of foreign investment. Russia is running down its holdings in its sovereign wealth fund, so ... the price cap we have put on Russian oil is substantially reducing Russia’s revenues," she added.

Several countries, particularly China and India, have helped Moscow lessen the effect of sanctions by ramping up their purchases of Russian oil.

Moscow has also been able to sidestep some sanctions by importing goods from third countries.

According to official figures, Russia’s gross domestic product (GDP) contracted by 2.1% in 2022 – far from the apocalyptic predictions from last year – although some Western countries say the statistics are fake.

"The Russian economy and management system turned out to be much stronger than the West believed," Russian President Vladimir Putin said on Tuesday, adding that the West wants to make ordinary Russians "suffer."

‘Big new package’

Yellen also said the global economy was "in a better place" than predicted a few months ago in the wake of Russia’s invasion and the resulting explosion in prices for fuel, food, and other essentials.

Her comments came before a meeting of G-7 finance ministers in Bengaluru later on Thursday to discuss further sanctions and more financial help for Ukraine.

A senior U.S. official said last week that the U.S. and its G-7 allies planned to unveil "a big new package of sanctions" around the Febr. 24 anniversary, including measures to crack down on the evasion of existing sanctions.

G-20 finance chiefs and central bank heads are also due to meet on Friday and Saturday in Bengaluru to discuss the dire economic effects of the war and possible debt relief for poorer nations.

About 15% of low-income countries are in "debt distress," the International Monetary Fund (IMF) has said. A record 349 million people in 79 countries face "acute food insecurity."

Any discussion on Ukraine is awkward for host India, which has not condemned the invasion. Bloomberg News reported that India wants to avoid the word "war" in any final statement.

It was unclear what level of involvement Russia would have in the broader G-20 meeting. German officials said no high-ranking Russian representative would be present.

A meeting of G-20 foreign ministers in New Delhi on March 1 and 2 could be tense, with Russian Foreign Minister Sergei Lavrov expected to attend alongside U.S. Secretary of State Antony Blinken.

‘Modern sectors’

Meanwhile, Western sanctions on Russia due to its war on Ukraine have impacted the country’s "modern sectors" severely, according to Pavel Baev, a researcher at the Peace Research Institute Oslo (PRIO).

Despite some claims that Western sanctions have been ineffective, Baev said their impact has wrongly been measured in terms of degradation rather than destruction of the economy.

According to a report by Switzerland-based St. Gallen University last month, while many well-known global companies have exited Russia since the conflict began, the majority remain active.

Top brands like Amazon, Apple, Google, Microsoft and Samsung are no longer active in the Russian market or are implementing some restrictions due to its war on Ukraine since the last February.

"Every modern sector of the Russian economy, from the IT sector to the aircraft building, is severely affected, and the degradation is set to accelerate," he added.

Since the beginning of the war, the EU has halted exports to Russia of cutting-edge technology, machinery, equipment, services, and products crucial to transportation, oil refining, energy, aviation, space, maritime navigation, radio communication and unmanned aerial vehicle sectors.

Self-destructing position

Underlining that sanctions have had a significant impact that is still accumulating on the Russian economy, Baev said many experts focused on its exports and income even while the unavailability of many imports has hit modern technologies particularly hard.

"This disruption of supply chains very seriously limits the ability of the Russian defense-industrial complex to produce the necessary weapon systems – and this is a major impact of the sanctions," he asserted.

On Russia’s position as a key player in the energy sector, he said the country’s countermeasures on Europe over its support for Ukraine had caused some suffering but ultimately proved less impactful than expected, even helping the continent transition towards renewables.

Not only showing remarkable resilience towards Russia’s threats to turn off the energy tap, but the EU has also taken the opportunity to strike back, "weaponizing" oil and gas imports and causing Russia much pain, said the security expert, adding that the extent of this damage would become evident by the summer.

He asserted that Russia had self-destructed its position as a significant energy power.

After the announcement of Western war sanctions last year, Russia threatened to halt the flow of hydrocarbons, especially natural gas, to European countries that depended on these energy products.

At the end of last year’s summer months, Russia cut off deliveries via the Nord Stream-1, claiming that malfunctions had occurred in the gas pipeline running from Russia to Germany under the Baltic Sea.

At the time of the decision, Russian gas giant Gazprom released a video of it turning off the valves amid threats of cold and famine in Europe with the oncoming winter.

Rebuilding economic links

Baev also pointed to the war’s effects on the global economy, saying that Moscow had expected its actions to have a much more profound impact and had so far been unable to internalize the fact that its international economic profile contracted so much.

After the beginning of the war, the global economy faced significant price rises in primary energy and food products. However, the surge has since subsided through alternative solutions and measures.

"Russia needs to internalize defeat in this tragic and destructive war, and this will be a painful process.

"It is much easier to plan for rebuilding Ukraine than to foresee the pattern of economic ties between Russia and the EU Moscow will have a chance to rebuild many essential economic connections, but only if it accepts the responsibility for the aggression and agrees to contribute to Ukraine’s revival."