This story is a modern-day parable. The lesson? If you are going to travel in foreign markets, make sure you have a top-notch tour guide. Over the next two days, a judge in Houston is going to rule on a motion brought by Deutsche Bank to dismiss bankruptcy proceedings against the Russian oil company Yukos. Why do we care?

Because the decision may cause havoc in the trading of Russian stocks and especially energy giant Gazprom, partly by unraveling a sizable hedge fund arbitrage. Beware. Meltdowns in Russian markets have a tendency to spread to other emerging markets, causing all kinds of damage.

Or, it may be no big deal. That’s the exciting thing about investing in Russia. As many global traders have discovered to their chagrin, things are rarely what they seem in that complicated country.

First, the background. In September of last year, President Putin revealed his intention to liberalize the trading in Gazprom shares. This enormous company accounts for about 20% of worldwide gas production and contributes approximately 8% of Russian gross domestic product of $350 billion (imagine that). It is, by far, the largest energy company in the world.

As big as it is, to date only Russians have been allowed to own the shares.

In a complicated sequence of events aimed partly at reassuring foreign investors after the Yukos affair, Putin announced that the government would sell state-owned Rosneft to Gazprom. This transaction would raise the government’s stake in the latter company from 38% to more than 50%, and subsequently open the stock up to foreign ownership.

With the ADRs selling at a 60% premium to the local shares, this announced plan presented a nifty arbitrage opportunity. It instantly attracted traders who sold short the ADRs and bought long the local shares through so-called “gray schemes” which involve complicated derivative instruments issued by local (Russian) brokers.

As a result, during 2004 Gazprom domestic shares rose 114%, while the ADRs increased only 37%, narrowing what had been a remarkable valuation gap. Today the ADR trades at 34, while the local shares trade at 2.68 (expressed in dollars – there is a 10:1 conversion ratio.)

Today’s premium, in other words, is only about 26%. It seems as though most players are banking on the deal going through.

However, what seemed like a predictable chain of events came a cropper when the management of Rosneft arranged to buy Yugansk, formerly part of Yukos. The government had forced the sale of Yugansk to satisfy tax obligations of Yukos. Its purchase by Rosneft left the Gazprom/Rosneft deal vulnerable to the legal issues besetting the Yukos bankruptcy – hence, the awaited Houston decision weighs into the equation.

It also turned out that the management of Rosneft may want to remain independent. This seems reasonable; we have surely heard that one before. And, surprise! The heads of both Gazprom and Rosneft are rivals for Kremlin power.

Sorting the wheat from the chaff, William Browder, head of Hermitage Fund in Moscow, looks at the situation as a long-term investor. Long a thorn in Gazprom’s side, Mr. Browder agrees that there is substantial foreign money currently invested in Gazprom, in anticipation of changing ownership rules.

He claims that Gazprom, which he has owned for seven years, is substantially undervalued compared to comparable energy companies around the world. Perhaps by as much as 97%, based on known reserves.

Mr. Browder, whose Hermitage Fund was up 22% last year, way outperforming the 8% rise in the RTS index which tracks the Russian market, knows more than most of us about how things Russian work.

He is skeptical of the notion that a failure by the Houston judge to dismiss the bankruptcy case (on the basis that the U.S. has no jurisdiction) will cause widespread pandemonium. He views value as key.

Will reason prevail? Stay tuned.

Ms. Peek is a former Managing Director with Wertheim Schroeder, now part of Citigroup.