By Hasmik Mkrtchyan

STEPANAKERT, Azerbaijan, Aug 27 (Reuters) - The unrecognised Caucasian statelet of Nagorno-Karabakh, almost completely penned in by a military and economic blockade, is enjoying an unlikely boom thanks to the patriotism of Armenia's foreign diaspora.

Nagorno-Karabakh, an enclave inside Azerbaijan with a majority ethnic Armenian population, declared independence in 1991 as the Soviet Union fell apart. It drove out Azerbaijan's troops in a war that claimed 35,000 lives over six years.

Today, it runs its own affairs but has no international recognition. Under blockade from Azerbaijan, with which it is still technically at war, its only practical connection with the outside world is through the Lachin Corridor -- a strip of a land with a single major road linking it to Armenia.

But its situation has struck a chord with the millions of ethnic Armenians in France, the United States and Australia, who feel it is their vocation to help.

"I swore an oath to help my motherland and my conscience is clear because I am doing my duty," said Jack Abolakian, a 74-year-old from Australia, who first came to Nagorno-Karabakh seven years ago on a four-day holiday with his wife.

He struggled to find anywhere to stay, and when he did, conditions were primitive. He decided to open a hotel in the capital, Stepanakert.

A few months later, the Hotel Nairi opened on the site of a kindergarten destroyed in the war. With 46 rooms offering Internet access and satellite television, and a tennis court, it provided a level of luxury unheard of in Stepanakert.

Abolakian, who divides his time between Nagorno-Karabakh and his construction firm in Australia, is now planning to build a housing development in the city.

"We're happy with our business. If you compare it with the amount of money we put in, it's a success," said Abolakian, who was born in Syria after his family fled what is now Turkey.

BROADER STRUGGLE

But most of the investors who come to Nagorno-Karabakh are seeking more than just financial gain.

The region has a powerful pull for the Armenian diaspora because many see it as part of a broader struggle for survival by a tiny, ancient Christian nation surrounded by Muslim neighbours.

Among those tying their lives to the region is Vardeks Anivyan, from San Francisco, who has opened a dairy plant.

An entrepreneur from Russia has opened a wood processing factory while Armond Tahmazyan, a 41-year-old ethnic Armenian born in Iran, has set up a chain of gift shops.

Investors such as these have helped Nagorno-Karabakh notch up annual economic growth averaging 15 percent in the past five years.

Because of its isolation and precarious legal status, the region of about 140,000 people is unlikely to become a major business magnet in the near future. It depends on an annual loan of about $60 million from Armenia to stay afloat.

About 1.5 million Armenians were killed in Ottoman Turkey early last century in what Armenians call a genocide, although Turkey rejects the term.

Most of the Armenian diaspora around the world can trace their origins to ancestors who fled the killings.

Many of them saw the war over Nagorno-Karabakh, known in Armenian as "Artsakh", as a continuation of that conflict: an Armenian community fighting for survival against Azeris, who have close linguistic and cultural ties to the Turks.

Azerbaijan denies the region was historically Armenian. It says the fighting drove out about a million Azeris from Nagorno-Karabakh and surrounding districts. Many still live in refugee camps.

"Any actions by any companies or organisations on the territory of Nagorno-Karabakh have no legal force," said Hazar Ibrahim, press secretary in Azerbaijan's Foreign Ministry.

"Their work in the occupied territories contradicts the norms and principles both of international law and Azerbaijan's legislation."

That has not dissuaded diaspora Armenians. A handful of them fought with the separatists in the war. Since a 1994 ceasefire, the region has become a place of pilgrimage for Armenians from around the world.

A telethon last year in Los Angeles raised $13.7 million for development and infrastructure projects in Nagorno-Karabakh from communities across the United States and elsewhere.

Tahmazyan, the Iranian-Armenian businessman, moved to Stepanakert eight years ago. Married to an Australian woman, he now runs the successful Nreni chain of souvenir shops, and has no plans to leave:

"We are staying here ... God willing."

(Additional reporting by Lada Yevgrashina in Baku)

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