Islam doesn’t encourage any more for theocracy than other Abrahamic religions. The existence of religious fundamentalist Islamic theocracies is a lot more complex than Islam. A lot of it can be traced to colonialism, the decolonization process and Western interference in Islamic countries. This is largely why Iran is one of those. The last Shah was seen corrupt autocratic puppet of the West by many. As a counter to it, the country over-corrected and landed in fundamentalist Islamic theocracy. Radicalization of Islam leading to similar governments happened in other Islam-majority countries. Before the 60s and 70s, many Islamic countries didn’t differ a lot from Western countries when it came to social liberties. There are a lot of images of Tehran and Kabul with women in mini skirts for example.

While I am not saying that modern Islamic countries are not problem or thousand when it comes to civil liberties and democracy, Islam in my knowledge was more tool and less reason behind it.