A clear understanding of Iranian foreign policy formulation and decision-making has long eluded political scientists and policy observers. The uneasy cohabitation of elected and unelected institutions, coupled with the truly supreme designation of the Leader in the Constitution, has led some scholars to argue that Iran’s theocracy must best be understood as a sultanate, not that different in its effects from the despotic periods of rule under the Pahlavi and Qajar dynasties preceding the Islamic Republic (Ganji, 2014). While it is certainly true that all meaningful power theoretically resides in the office of the Leader, given that his office is also a symbolic representation of the whole system (or nezam), such powers are very much circumscribed by considerations of legitimacy. In this sense, Iran’s case is not much different from other so called “competitive authoritarian” systems. Abundant evidence from political memoires, declassified documents, and secondary histories suggest there is extensive political in-fighting within authoritarian regimes, but there has been little advance in understanding how to think about such factional disputes, and their winners and losers. Recent work on authoritarianism has largely focused on two areas: the nature of the selectorate for such regimes (Geddes 1999, Bueno de Mesquita, et al 2003) and institutional constraints that authoritarian regimes accept in order to generate greater legitimacy (Gandhi and Przeworski 2007, Gandhi and Lust-Okar 2009, Levitsky and Way 2010, Boix and Svolik 2011). This conceptual effort parallels attempts to quantify institutional constraints across states (e.g., Beck, et al 2010, Henisz 2010). Through a case study of Iran, this paper argues that existing typologies and indicators mask considerable variation in the actual functioning of the Islamic Republic’s arbitrary system of rule, variation with meaningful impact on foreign policy formulation and decision-making. To ensure the stability of the Islamic regime, the Supreme Leader must maintain the appearance of impartiality among different foreign policy factions. Yet, the arbitrary powers invested in his office can only be justified through the enforcement of certain “red lines”. The maintenance of this façade, in turn, is only possible if the elected institutions of the state yield a heterogeneous political landscape in which contestation and change remain as plausible in practice. In the case of the Islamic Republic, the resulting dynamic is in fact an instructive lesson in policy formation under conditions of competitive authoritarianism.