GraphQL allows clients to request specific data, and its flexibility can be exploited to create complex or recursive queries. Circular references occur when an object type refers back to itself directly or indirectly through other types.

For example:
```graphql
 query CircularReferences  {
     user {
       friends {
         user {
           friends {
             user {
               __typename
             }
           }
         }
       }
     }
   }
```

Security Impact of Circular References in GraphQL:

- **Denial of Service**: By sending a large query with too many nested references, an attacker can overwhelm the server, causing it to slow down or crash.
- **Resource Exhaustion**: The server may run out of memory or CPU resources while processing the query, leading to performance degradation or service unavailability.
