Efficient approach to Query DB with data in text file
Every server is different, but you might be surprised how quickly you can query through a million rows. Are you inserting the data into a table, or are you just trying to query against it?

If you're just trying to query against the file but don't need to store the data in the database, you could insert it into a Temp Table and run your queries against it.

If you're inserting the file into a table I would go with your first option. One query is going to cause less load on the server than running 1 million queries (if I understood you correctly). Without knowing your query I can't help with performance/load. It may not be applicable, but a UNION is typically faster than a JOIN. Just something else to keep in mind.

(Sorry for the answer and not a comment, I don't have the rep yet)