As to the yarn, I like wool but it really does need to be washable. You're not going to be able to handwash a blanket and you certainly can't afford to take it to a cleaner's. I like Lion brand Woolease. It's got the warmth of wool but the washability of an all acrylic. This is a wool acrylic blend. I'm reading that some knitters like to use this as a cheaper alternative to the superwash wools. And Joann's happens to have this on sale right now. You can buy this online. I'm not sure if they can mail it to you overseas.
Gauge is not all that critical with a blanket. No one is going to see your work. The only thing that matters is that you and your dog like it. Use what you want. The beauty of knitting is that you can change a pattern, tweak it to suit yourself, and change anything you don't like. Customize it. Put pockets on it. Use whatever yarn tickles your fancy. This is YOUR blanket, not the ladies' at the yarn shop.