Why did a wave of panic spread through cotton circles in Britain when the American Civil War broke out in 1861?

Before the 1860s, three-fourths of raw cotton imports into Britain came from America.

The correct answer is Option 1 - Before the 1860s, three-fourths of raw cotton imports into Britain came from America.

Before the 1860s, three-fourths of raw cotton imports into Britain came from America. British cotton manufacturers had for long been worried about this dependence on American supplies.

When the American Civil War broke out in 1861, a wave of panic spread through cotton circles in Britain. Raw cotton imports from America fell to less than three per cent of the normal: from over 2,000,000 bales (of 400 lbs each) in 1861 to 55,000 bales in 1862. Frantic messages were sent to India and elsewhere to increase cotton exports to Britain. In Bombay, cotton merchants visited the cotton districts to assess supplies and encourage cultivation. As cotton prices soared , export merchants in Bombay were keen to secure as much cotton as possible to meet the British demand. So they gave advances to urban sahukars who in turn extended credit to those rural moneylenders who promised to secure the produce. When there is a boom in the market credit flows easily, for those who give out loans feel secure about recovering their money.