There are rumors floating around the Internet and some news outlets that Supreme Leader Ayatollah Khamenei has died. The best summary of the speculative nature of this rumor comes from the Telegraph. There has been an official denial too: See Here. There certainly will come a day when Khamenei will die, it may have come already, but in any case the Islamic Republic of Iran has a process in place for dealing with such a situation. The first Supreme Leader Ayatollah Khomeini, the focal point of the Iranian Revolution, died in 1989, and that was when Khamenei was selected. The body that selected Khamenei was the Assembly of Experts. This same body will select again, when the time comes.
Keep in mind one of the names out in front of this rumor is Michael Ledeen, and he is an intellectual Neocon Godfather. His motives are highly suspect on nearly any foreign policy issue. See Here: Michael Ledeen--NeoCon Big Fish
The Assembly of Experts is supposed to meet twice annually, and among their responsibilities is selecting the Supreme Leader. Many speculated that during the election crisis this summer that the Assembly of Experts might intervene, and they are not necessarily inclined toward Ahamdinejad or the Revolutionary Guards. Ayatollah Rafsanjani is the current leader of the Assembly of Experts, and he was again confirmed in this position in March of 2009. Hard-line Ayatollah Yazdi, closely associated with Ahmadinejad, tried to wrest the leadership position from Rafsanjani. He failed, and fell short with half as many votes as Rafsanjani.
In the event that Khamenei dies, the Assembly of Experts will select a new Supreme Leader, and they will do this according to their own timetable and their own deliberative processes. In this body, clerical authority is paramount. While Ahmadinejad's government will ignore the writings and pronouncements of Grand Ayatollahs like Montazeri and Sanei, the Assembly of Experts will not. To many members of the Assembly of Experts, the writings and comments of Sanei and Montazeri give them political cover to choose a Supreme Leader that will work against the current Revolutionary Guard drift of the government. To see information on Montazeri see this diary here: August 27, 2009. For information on Sanei see his website here: Grand Ayatollah Sanei.
The Revolutionary Guards and Ahmadinejad certainly have many allies on the Assembly of Experts, but the failure of Yazdi in his bid for leadership last March shows that they are far from a majority. In addition, it is doubtful that the Assembly has become more friendly toward them since the election. Khamenei could possibly have been the stopgap person that kept a full scale clerical revolt in check over the summer. Khamenei's clear intervention in Ahmadinejad's favor showed his sympathy toward the more hard-line positions, however, in the absence of Khamenei, the Conservative forces lose the most powerful ally they have. There certainly could be a possible coup attempt by Revolutionary Guards, however, if they do so in conflict with the Assembly of Experts, they will be abandoning all Islamic Legitimacy and be publicly declaring themselves no different from the junta that took over Pakistan under General Pervez Musharraf. Iranian civil society would be 1000 times less likely to accept this than Pakistan.
If the rumor is borne out, it does not necessarily mean that all hell is about to break loose as people like Michael Ledeen would love. The thing to do would be to properly pay respect to the passing of a nation's leader, and wait to see what develops. Iran has institutions in place to handle succession. On the other hand the rumor may well turn out to be false, and in such a case it is best to not speculate much on "what ifs?"