Summary A performance‐based earthquake engineering approach is developed for the seismic risk assessment of fixed‐roof atmospheric steel liquid storage tanks. The proposed method is based on a surrogate single‐mass model that consists of elastic beam‐column elements and nonlinear springs. Appropriate component and system‐level damage states are defined, following the identification of commonly observed modes of failure that may occur during an earthquake. Incremental dynamic analysis and simplified cloud are offered as potential approaches to derive the distribution of response parameters given the seismic intensity. A parametric investigation that engages the aforementioned analysis methods is conducted on 3 tanks of varying geometry, considering both anchored and unanchored support conditions. Special attention is paid to the elephant's foot buckling formation, by offering extensive information on its capacity and demand representation within the seismic risk assessment process. Seismic fragility curves are initially extracted for the component‐level damage states, to compare the effect of each analysis approach on the estimated performance. The subsequent generation of system‐level fragility curves reveals the issue of nonsequential damage states, whereby significant damage may abruptly appear without precursory lighter damage states.