A 165 tyre CAN stretch over a 7 inch wheel...... but it will take AGES for the guy to get both beads to seal on the rim...... and the tyre will look just too damn small.
Here is one of my 10x7 wheels with 165-70-10 tyres on it. The trye is 35mm narrower than the rim on each side. A 205 wide tyre would be much better looking.
^^ 35mm from the edge of the blue box to the start of the tread
The difference between my 10's and a set of 12's will be the side wall....... the 12's will have a shorter side wall and will be harder to get to seal on the rim. There will also be a greater chance of having one of the beads pop off under heavy cornering.
Another thing to consider will be the offset of the wheel. If it has a large amount of positive offset (like mine) then even the big Group 5 arches wont be wide enough. Here you can see that the 7 inch rim sticks out past the arch by an inch, but the narrow tread on the tyre does not.
