In 2003, administrators at Stanford University's Electrical Engineering Department were startled when a group of foreign students aced the notoriously difficult Ph.D. entrance exam, getting some of the highest scores ever. That the whiz kids weren't American wasn't odd; students from Asia and elsewhere excel in U.S. programs. The surprising thing, say Stanford administrators, is that the majority came from one country and one school: Sharif University of Science and Technology in Iran.

Stanford has become a favorite destination of Sharif grads. Bruce A. Wooley, a former chair of the Electrical Engineering Department, has said that's because Sharif now has one of the best undergraduate electrical-engineering programs in the world. That's no small praise given its competition: MIT, Caltech and Stanford in the United States, Tsinghua in China and Cambridge in Britain.

Sharif's reputation highlights how while Iran makes headlines for President Mahmoud Ahmadinejad's incendiary remarks and its nuclear showdown with the United States, Iranian students are developing an international reputation as science superstars. Stanford's administrators aren't the only ones to notice. Universities across Canada and Australia, where visa restrictions are lower, report a big boom in the Iranian recruits; Canada has seen its total number of Iranian students grow 240 percent since 1985, while Australian press reports point to a fivefold increase over the past five years, to nearly 1,500.

Iranian students from Sharif and other top schools, such as the University of Tehran and the Isfahan University of Technology, have also become major players in the international Science Olympics, taking home trophies in physics, mathematics, chemistry and robotics. As a testament to this newfound success, the Iranian city of Isfahan recently hosted the International Physics Olympiad--an honor no other Middle Eastern country has enjoyed. That's because none of Iran's neighbors can match the quality of its scholars.

Never far behind, Western tech companies have also started snatching them up. Silicon Valley companies from Google to Yahoo now employ hundreds of Iranian grads, as do research institutes throughout the West. Olympiad winners are especially attractive; according to the Iranian press, up to 90 percent of them now leave the country for graduate school or work abroad.

So what explains Iran's record, and that of Sharif in particular? The country suffers from many serious ills, such as chronic inflation, stagnant wages and an anemic private sector, thanks to poor economic management and a weak regulatory environment. University professors barely make ends meet--the pay is so bad some must even take second jobs as taxi drivers or petty traders. International sanctions also make life difficult, delaying the importation of scientific equipment, for example, and increasing isolation. Until recently, Iranians were banned from publishing in the journals of the Institute for Electrical and Electronics Engineers (IEEE), the industry's key international professional association. They also face the indignity of often having their visa applications refused when they try to attend conferences in the West.

Yet Sharif and its ilk continue to thrive. Part of the explanation, says Mohammad Mansouri, a Sharif grad ('97) who's now a professor in New York, lies in the tendency of Iranian parents to push their kids into medicine or engineering as opposed to other fields, like law. Sharif also has an extremely rigorous selection process. Every year some 1.5 million Iranian high-school students take college-entrance exams. Of those, only about 10 percent make it to the prestigious state schools, with the top 1 percent generally choosing science and finding their way to top spots such as Sharif. "The selection process [gives] universities like Sharif the smartest, most motivated and hardworking students" in the country, Mansouri says.

Sharif also boasts an excellent faculty. The university was founded in 1965 by the shah, who wanted to build a topnotch science and technology institute. The school was set up under the guidance of MIT advisers, and many of the current faculty studied in the United States (during the shah's era, Iranians made up the largest group of foreign students at U.S. schools, according to the Institute of International Education). Another secret of Sharif's success is Iran's high-school system, which places a premium on science and exposes students to subjects Americans don't encounter until college. This tradition of advanced studies extends into undergraduate programs, with Mansouri and others saying they were taught subjects in college that U.S. schools provide only to grad students.

Several Sharif alumni point to one other powerful motivator. "When you live in Iran and you see all the frustrations of daily life, you dream of leaving the country, and your books and studies become a ticket to a better life," says one who asked not to be identified. "It becomes more than just studying," he says. "It becomes an obsession, where you wake up at 4 a.m. just to get in a few more hours before class."

Iran's success, in other words, is also the country's tragedy: students want nothing more than to get away the moment they graduate. That's a boon for foreign universities and tech firms but a serious source of brain drain for the Islamic republic. There simply are not enough quality jobs for graduates in Iran, says Ramin Farjad Rad, another Sharif grad ('97) who's now an executive at Aquantia in Silicon Valley. What's worse, star students who stay in Iran and try to launch businesses complain that predatory government officials demand a cut of their profits or impose unnecessary obstacles. Thus many Iranians who can't make it to the West head to Dubai instead. As one Sharif grad in the Persian Gulf port city puts it, "Here, our education is properly valued. We are given freedom to succeed. In Iran, we are blocked."

Such frustrations augur ill for Iran's future. True, it's produced a startling number of top students in recent years. And the country's history is rich with achievement, featuring Avicenna (also known as Ibn Sina), the medieval world's greatest scientist; Muhammad al-Khwarizmi, the ninth-century inventor of the mathematical algorithm (the basis of computer science), and Omar Khayyam, the famed mathematician and astronomer. That's a fine legacy. But unless the Islamic republic changes directions soon, all of that history and potential could be squandered.