Does Google Drive allows to hotlink the images? For example, I can upload images there and link to them on my website? Will it violate their terms and condition?
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You can do it and it will not violate the terms and conditions at all.
Just make sure that the "Share Options" of the image is "Anyone who has a link" and "Does not require sign-in".
It will be a violation only if you do not have copyright of the particular image(s) in question.