Azerbaijan is an oil rich country and a transition economy. It is witnessing an increasing foreign direct investment and fast economic growth. Mismanagement of this process might turn resources from being a blessing into a curse, one that destabilizes the economy, society and the region. Dutch disease is analyzed as one way the factors economic development could be disturbed in Azerbaijan. The effects of Dutch disease, as well as, ways to avoid it are explored in this paper. I argue that in order to avoid the so called ‘disease’, government should manage the revenues via funds that are governed in a transparent and efficient manner so that these funds would compensate the economy in case of a fluctuation in the world oil markets, and it would support the economy when the reserves are used up. While managing revenues via funds the income should be allocated to investment in sectors that produce tradable goods for the market, sectors such as agriculture and manufacturing would qualify.