Rimma Alaverdian, 71, hasn't seen her home for 18 years and doesn't think she ever will again. She is one of the forgotten victims of a chaotic war fought high in the Caucasus mountains amid the collapse of the Soviet Union. For her and hundreds of thousands of others in the region, the wounds of those years will never heal and ethnic hatreds still smolder, undermining peace efforts and risking regional power plays in this strategic region. Rimma was kicked out of Azerbaijan in 1990, during the bitter conflict with neighboring Armenia. Her husband was beaten up twice and a note was pushed through her letter box warning that ethnic Armenians like her who remained in the Azeri capital of Baku would be killed. Population transfers took place in both directions as Armenian forces captured the mountainous, mainly Armenian region of Nagorno-Karabakh from Azerbaijan during a forgotten war that left an estimated 30,000 people dead. The conflict erupted as the collapse of the Soviet Union blew the lid off simmering ethnic tensions throughout the Caucasus. Diplomatic efforts failed to resolve the deadlock over Nagorno-Karabakh and a peace treaty has never been signed. Azerbaijan is currently in the middle of an economic boom financed by the discovery of significant oil and gas reserves. Much of the new-found wealth is being diverted to defense spending and Armenia fears that Baku's rearmament drive is a prelude to war to regain control over the disputed province. The Bolsheviks captured the Caucasus in the early 1920s and established Soviet republics in Georgia, Armenia and Azerbaijan. Even though Armenians had long been the majority in Nagorno-Karabakh, Stalin, himself from Georgia, decided that the area would be part of ethnically Turkic Azerbaijan as part of his efforts to placate Turkey and divide and rule the often-rebellious Caucasus region. Armenians considered this a great historical injustice that was only put right when Armenia captured the region during fighting which ended in 1994, but has left a bitter legacy ever since. According to the Armenian version of events, military intervention prevented a massacre of ethnic Armenians that was already underway in Karabakh and throughout Azerbaijan. The Turkish genocide against the Armenians between 1915-18 remains a poignant memory, and many feared the attacks were the prelude to history repeating itself. The Azeri story rejects Armenian claims of ethnic cleansing, with focus on massacres against ethnic Azeris and military aggression in defiance of international law. Armenia was left occupying 14 percent of Azerbaijan; not only Karabakh but an additional 9% of Azeri territory seized by Armenians as a buffer zone. The suffering on both sides is not in dispute. Some 400,000 ethnic Armenians fled from Azerbaijan, with about 600,000 Azeris moving in the opposite direction. Many of the Armenian refugees moved into homes vacated by fleeing Azeris, and vise versa. Today there are no ethnic Armenians in Azerbaijan, and neither Armenia nor Karabakh have Azeri residents. Both countries spent their formative years of independence following the collapse of the Soviet Union burdened with a huge refugee problem. Rimma ended up in the village of Yeghegnavan, in the shadow of Mount Ararat, which lies just over the Turkish border, where tradition has it Noah's ark came to rest. The village used to be entirely Azeri but all 1,600 inhabitants fled during the Karabakh war. According to the local Armenians, the Azeris left peacefully over a period of a few months and managed to take their processions with them. Unsurprisingly, many Azeri's dispute this. Rimma, in contrast, fled her home in Azerbaijan overnight with her family, and claims the Azeri authorities prevented the Armenians taking any belongings, saying it was Azeri property. Rimma says she had an eight-room home in Baku, but now has to settle for a small three-room house in a village with no running water and unpaved roads. She is nostalgic for her life in Soviet Azerbaijan, where the large and prosperous Armenian community lived in relative harmony with their Azeri neighbors. But she knows she can never go back. Her eldest son moved to Russia to make a new life with his Azeri wife. Her younger son, after moving to the village, left to fight in Karabakh in 1990. He was killed in action in the disputed region three years later. Despite the cease-fire, tit-for-tat shootings take place across the line of control almost every day, with hundreds of incidents reported each year by both sides. Far from being a frozen conflict left over from the messy collapse of Communism, the conflict still has the potential to reignite. With Iran, Turkey and Russia all bordering, this is a tough neighborhood. And it could be about to get even tougher. Capitalizing on three years of sky-high oil revenues, Azerbaijan has massively increased its defense spending and Armenia is worried. Defense officials in Yerevan told The Jerusalem Post that Israel is one of the main suppliers of weapons to Baku; Israeli and Azerbaijani officials remain tight-lipped. Armenian Defense Minister Seyran Ohanyan sees the writing on the wall. "The sharp increase in military spending, the development of offensive capabilities and the acquisition of new weapons means Azerbaijan is preparing for war," he said. Ohanyan insists Yerevan is ready to resist but expressed the hope that "common sense will prevail." Others view Azerbaijan's increasing militarism as little more than sabre rattling, pointing to high levels of corruption in the military command likely undermining their battlefield capability. On the positive side, despite their historical differences and Turkey's ongoing refusal to recognize the Armenian genocide, there has been a recent thaw between Ankara and Yerevan, as Turkey attempts to improve its diplomatic standing in Washington and Brussels. Turkish President Abdul Ghoul paid an historic visit to Yerevan last September to attend the Armenia-Turkey Euro 2010 football qualifying match. He met with his Armenian counterpart and discussed efforts to normalize relations. Landlocked Armenia, with both its western border with Turkey and its eastern border with Azerbaijan closed, is keen for any steps to ease its regional isolation. The Organization for Security and Cooperation in Europe, via the Minsk group, comprised of Russia, France and the US, has so far failed to come up with a compromise acceptable to both Armenia and Azerbaijan that takes into account the contrasting principles of Azeri territorial integrity and Armenian self-determination in Karabakh. A thaw in Turkish-Armenian ties could be the catalyst to break the diplomatic deadlock. With Azerbaijan's recent military buildup such a breakthrough may well be needed more than ever.