Vatican City, the Islamic Republic of Iran and the many countries that use Islamic law as the basis for their legal systems are considered to be theocracies by many scholars. These countries are considered theocratic because they adhere to the definition of theocracy, which is a governmental system in which religion or divine guidance is the primary source of political guidance.
Iran has been a theocracy since the explicitly religious Islamic Revolution in 1979, when the people of Iran established a country based on Islamic law. Iran's head of state, the Supreme Leader, is an unelected Islamic scholar who appoints some of the most powerful positions in the country, including the religious body that can invalidate the laws passed by parliament. He also has the power to start and end wars. Because that country's laws are under the supreme command of a man chosen because of his religious bona fides, and because the country's constitution is formed with an explicit religious intent, Iran is considered a theocracy. However, it does have some democratic elements, such as periodic and relatively fair elections.
The Holy See (Vatican City) is also a theocracy because it is headed by a religious figure, the Pope, administered by clergy and governed by religious laws, in this case those of the Roman Catholic Church.
Countries that do not have explicitly religious leaders but that have laws based on religion are often seen as theocracies as well. Some countries of this description include Saudi Arabia, Yemen and Afghanistan.