Given that the contact area (265) is the same, the smaller sidewall (65) is going to be better. With the larger sidewall (70) you have more weight due to it being taller and it also raises your effective gear ratio due to it being taller, thus making the engine have to work harder. The smaller sidewall (65) will have less weight and an effective lower gear ration, thus making the engine work less. Less engine work, the better the fuel economy potential.

 

About a 3% difference between the tires. In city driving the larger tires would probably result in a loss in MPG's but on the highway may present a gain.

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