Zelenskyy Says U.S. Offered Free Economic Zone, Donbas Withdrawals

Ukrainian President Volodymyr Zelenskyy told reporters on December 12 that U.S. negotiators have put forward a revised peace framework that would create a U.S. proposed free economic zone in Ukraine controlled portions of the Donetsk and Luhansk industrial region, commonly known as the Donbas. The proposal, as described by Zelenskyy, envisages Ukrainian forces pulling back from some well fortified positions while Russian troops would not enter the same areas, a maneuver Washington framed as a way to reduce frontline violence while leaving governance arrangements unresolved.

Zelenskyy said the proposal was presented as one of several options under discussion and stressed that Kyiv has not agreed to cede territory. He emphasized that “they do not know who will govern this territory.” He also framed Ukrainian insistence on local democratic legitimacy, saying people in disputed areas should decide their fate “whether through elections or a referendum.” Zelenskyy said Kyiv’s position is that it is “fair to stand where we stand, that is, on the contact line,” and that both sides staying where they currently are along the contact line would be “a fair outcome.”

Kyiv submitted a revised, 20 point peace plan to Washington this week, Zelenskyy said, and described talks with the U.S. negotiating team as “constructive” and “in depth.” The Ukrainian leader disclosed that an early draft discussed with American negotiators included provisions for a post war Ukrainian army of about 800,000 troops, a markedly larger force than figures that had circulated in initial frameworks and one that would carry major budgetary and manpower implications for Ukraine’s long term defense posture.

Zelenskyy identified members of the U.S. delegation as Secretary of State Marco Rubio, Secretary of Defense Pete Hegseth, special presidential envoy Steve Witkoff and Jared Kushner, and said NATO chief Mark Rutte also joined the talks. He has held parallel consultations with European partners, including meetings in London with Sir Keir Starmer, before sending the revised plan to Washington. Russian officials have not publicly disclosed their parallel proposals, according to Zelenskyy.

The economic mechanics of a free economic zone in the Donbas would be consequential. The region remains a concentrated cluster of coal mining and heavy industry, and its status will shape reconstruction priorities, trade flows and private sector confidence. Investors and aid donors will weigh the legal clarity of property rights and governance before committing capital to rebuild factories, ports and infrastructure. Energy security concerns also loom, with negotiators reportedly discussing the Russian occupied Zaporizhzhia nuclear power plant as part of broader security guarantees.

Market implications could be substantial if Kyiv accepts arrangements perceived as limiting sovereignty. A prolonged period of ambiguous governance could raise risk premia on Ukrainian sovereign debt and deter foreign direct investment, complicating efforts to fund an expanded standing army and reconstruction. Conversely, a credible, internationally backed zone that protects civilians and secures critical infrastructure could accelerate targeted investment and ease some immediate reconstruction funding needs.

As of today, talks with the U.S. team are ongoing and core issues remain unresolved, including territorial control, governance of any withdrawal area, post war force levels and enforceable security guarantees. Zelenskyy said there was no strict deadline but acknowledged U.S. negotiators have signaled a preference for clarity by Christmas.