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The Baltic States face a dual crisis of drone incursions and political instability, with Latvia's PM resigning over stray Ukrainian drones and NATO responding with a fighter jet shootdown, while Kaja Kallas dominates EU-level Russia policy but rules out running for Estonian president.
May 2026
Week of May 18, compared to 12-week average
Estonia's energy market shows divergence from its neighbors, with frequency market success yielding lower prices than Latvia and Lithuania, while the country relies on imports for over 40% of power in Q1. Defense-related construction proceeds: Rheinmetall's ammo factory in Lithuania is slightly behind schedule, and Turkish company ARCA will build a factory in Estonia.
Latvia's PM resigned over stray Ukrainian drones, and a new coalition pledged to work together. Kaja Kallas made sharp statements on Russia and Ukraine, ruled out running for Estonian president, and faced EU doubts as a Russia negotiator, while condemning Oreshnik deployment as nuclear intimidation.
Drone incursions dominate the security landscape: a NATO fighter jet shot down an intruder drone in Estonia, and multiple drones crashed in Latvia, prompting air alerts and exam suspensions. Lithuania reels from alerts, with officials stating the system must operate as if wartime.
Demographic decline is a dominant tension: Estonia's population could shrink by a third by century's end due to low birth rates and migration, and new EU figures highlight Latvia's demographic challenge. Housing affordability in Lithuania is under strain, with buyers decrying 'hunger games' for homes.
