(Reuters) - The conflict in Ukraine is significantly impacting Russia's economy, raising domestic prices, and forcing Moscow to devote a third of its budget on defense, the Financial Times reported on Thursday, citing a draft text from the U.S. Treasury department.

Russia's economy would have expanded by over 5% if Putin had not launched the war in Ukraine, the newspaper reported quoting Rachel Lyngaas, the chief sanctions economist at the department.

Lyngaas added that the country was underperforming other energy exporters, including the United States.

The U.S. Department of the Treasury did not respond to Reuters' request for a comment.

Moscow was spending more than $100 billion, or almost a third of its total expenditures on defense in 2023, according to the FT report.

The backbone of Russia's economy - oil and gas revenue - took a hit this year, although there had been a slight recovery in recent months as oil prices firmed. Additionally, Western sanctions on Russia's oil trade have not had as great an impact as initially predicted.

(Reporting by Anirudh Saligrama in Bengaluru; Editing by Edmund Klamann and Sherry Jacob-Phillips)