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There are a variety of recipes for mulled wine, but basically what they all have in common is citrus peel and aromatic spices like cinnamon, cloves, nutmeg and allspice, heated (but not boiled) in red wine, with a little bit of sugar. It's best to use whole spices rather than powder so you can strain them out. If you don't have things like cinnamon stick, whole nutmeg, whole cloves and whole allspice in your pantry, you may end up spending a few bucks for the set, but one can or jar of each of the above will provide enough spices to make mulled wine for years.

Here's a simple recipe, derived from one by Craig Claiborne in The New York Times Cookbook:

Mix one "fifth" of dry red wine in a saucepan with the peel (yellow part only) of one lemon and one orange, 1 tablespoon sugar, and any combination of 2 or 3 inches of cinnamon stick, 1 whole nutmeg (crushed), 6 whole cloves and/or 6 allspice berries.

Heat to the simmer, but don't let it boil, and hold just below the boil for 5 to 10 minutes. Strain out the spices and serve the wine hot.

While I wouldn't use a wine so cheap that you wouldn't drink it, it doesn't really make sense to use an expensive wine in this procedure. A decent red "jug" wine or inexpensive varietal like a Merlot or Zinfandel in the $5 range would be my choice.