Surface cracks have long been recognized as a major cause of potential failures for pipes. To ensure safe operation of deteriorated steel pipes, it is essential to accurately predict the failures. This paper presents a reliability based methodology for the assessment of corrosion affected steel pipes with circumferential cracks. Based on a recently derived elastic fracture toughness model for steel pipes with circumferential cracks, a failure criterion based on linear elastic fracture mechanics is employed. After development of the stochastic model of the load effect, the first passage probability theory is employed to quantify the probability of pipe failure. Then a case study is used to demonstrate the application of the proposed methodology, followed by sensitivity analysis to investigate the effects of key parameters on the probability of failure. Results show that the correlation length significantly affects the probability of failure of the corroded steel pipes and the coefficients k and n in the corrosion model influence the probability of failure for corroded steel pipes the most.